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 rises, it typically indicates that additional units of output are becoming less efficient to produce. This is a sign of decreasing returns to scale, where the cost of producing an additional unit of output increases as more units are produced.
This could also reflect diminishing marginal productivity, where each additional unit of input results in a smaller increase in output.
Option 1 is incorrect because increasing returns to scale would be characterized by decreasing marginal costs.
Option 3 is incorrect because constant returns to scale implies no change in the cost of production with more units. Option 4 is also incorrect since rising marginal costs reflect a change in total cost.