Question

What term is used to describe when the average cost of producing each individual unit declines as total output increases?

1)	Variable costs

2)	Constant returns to scale

3)	Economies of scale

4)	Increasing returns to scale

Answer 1

Answer;

Option 3 is the correct answer.

1. variable cost is the cost that changes as the quantity of a good increases.

2. Constant returns to scale is the quantitative relationship between input and output that stays constant.

3.Economies of scale is a situation where average cost increases as the firm's output increases. In other words economies of scale occurs when increasing the production and lowering the costs.

4.Increasing returns to scale occurs when the output increases as a larger proportion than the increase in input.