Question

If a product exhibits decreasing returns to scale, then the average cost of making the product will ______ as its production increases?

Answer 1

If a production exhibits decreasing returns to scale, then the average cost of making the product will  Decrease as its production increases. When all input levels, including the use of physical capital, are variable, returns to scale in economics describes what happens to long-run returns as the scale of production increases .

The production function of a firm is where the idea of returns to scale first appears. It clarifies the long-term relationship between the rate of rise in output  and corresponding increases in inputs. Over time, all production elements are flexible and subject to modification in response to a specific rise in production scale.

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