Question

In an increasing returns (decreasing cost) industry, what happens when demand increases in the long run?

पर्याय

• Price rises and output falls

• Price falls and output rises

• Both price and output fall

• Price remains constant and output falls

Answer 1

Price falls and output rises

Explanation:

Due to economies of scale, costs per unit fall when output expands, so higher demand leads to more output at a lower normal price.