Question

If your long-run costs exhibit increasing returns to scale, securing big orders leads you to

a. ​Increase average costs

b. ​Reduce average costs

c. ​Keep the average costs constant

d. ​None of the above

Answer 1

Option B.

• If your long run costs exhibit increasing returns to scale, then securing big orders leads you to reduce average costs.
• This is due to the concept of economies of scale which states that the average cost decreases when the production increases.
• When big orders are secured, then the total cost of production gets distributed over each units produced.
• This helps in reducing the average costs of production when the long run costs exhibit increasing returns to scale.