Question

If the marginal cost of production is rising, this usually indicates:

• A. Increasing returns to scale
• B. Decreasing returns to scale or diminishing marginal productivity
• C. Constant returns to scale
• D. No change in total cost

Hint:

When marginal cost increases, it indicates diminishing returns to scale, meaning that increasing production leads to higher costs for each additional unit produced.

Answer 1

The Correct Option is B

When the marginal cost of production increases, it signifies that producing extra units of output is becoming less efficient. This suggests diminishing returns to scale, where the cost of each additional unit of output rises as production volume grows. This situation can also indicate diminishing marginal productivity, meaning each additional unit of input yields a smaller increment in output. Option 1 is incorrect because increasing returns to scale would be associated with falling marginal costs. Option 3 is incorrect because constant returns to scale implies that the cost of production remains stable with increased output. Option 4 is also incorrect, as rising marginal costs directly impact the change in total cost.