If a firm is experiencing decreasing returns to scale, then as quantity of output rises, the average cost of production rises. Economies of scale are cost advantages a company has as a result of increasing its output level.
Benefit results from inverse connection between quantity produced and fixed cost per unit. When all production factors are increased by a specific percentage, outcome is a less-than-proportional rise in output, this is known as decreasing returns to scale. The three types of return to scale are constant returns to scale (CRS), increasing returns to scale (IRS), and decreasing returns to scale (DRS).
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