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WAEC Economics 2020 Question 18

Question 18

Theory of Production

Increasing returns to scale suggests that

  1. A.a firm can make profit by reducing output.
  2. B.a firm can make more profit by increasing output.
  3. C.as the producer reduces the quantity of raw materials used, the marginal product will double.
  4. D.as the producer increases the quantity of raw materials used, the marginal product will fall.
Show the answer and explanation

Answer: B (a firm can make more profit by increasing output.)

Explanation

With increasing returns, output rises faster than inputs, so unit costs fall as output grows.