Question

True or False, Explain

As long as the marginal cost of production is lower than the average variable cost, then a firm demonstrate increasing return to scale.

Answer 1

True , as long as marginal cost curve is below the average variable cost curve the firm will experience increasing returns to scale.

Because till the MC curve is below the AVC curve AVC is falling which means that by increasing output cost is decreasing which indicates increasing returns to scale but after that , when MC cuts AVC and start rising above AVC , AVC curve also starts rising which indicates for an increase in output cost is increasing therefore there is not increasing returns to scale.