When a firm experiences increasing returns to scale
A)its AFC will decrease.
B)its AFC will increase.
C)its AC will increase.
D)its AC will decrease.

Question

Quizplus · Accepted Answer

When a firm experiences increasing returns to scale, it means that when the firm increases its inputs, its output increases by a greater proportion. This leads to a decrease in the average cost (AC) of production since the fixed costs are spread over a larger quantity of output. Therefore, the answer is D, where the firm's AC will decrease.

When a Firm Experiences Increasing Returns to Scale