Changes

''Answer'':  Think back to what "economies of scale" means.  It refers to whether the firm has better efficiency at a bigger size, or better "returns to scale" as the size of a firm increases.  We talked about "increasing" returns to scale and "decreasing" returns to scale.  The "economies of scale" suggests that the firm can operate more "economically" if it has larger "scale" or size.  In other words, "economies of scale" means "increasing returns to scale."

''Answer'':  Think back to what "economies of scale" means.  It refers to whether the firm has better efficiency at a bigger size, or better "returns to scale" as the size of a firm increases.  We talked about "increasing" returns to scale and "decreasing" returns to scale.  The "economies of scale" suggests that the firm can operate more "economically" if it has larger "scale" or size.  In other words, "economies of scale" means "increasing returns to scale."

What happens when a firm that has "increasing returns to scale" increases its output?  It must expand, or get bigger, to increase its output.  But, like Wal-Mart, such a firm does better the bigger it is.  So (a), (b) and (e) are incorrect.

What happens when a firm that has "increasing returns to scale" increases its output?  It must expand, or get bigger, to increase its output.  But, like Wal-Mart, such a firm does better and becomes more profitable the bigger it is.  So (a), (b) and (e) are incorrect.

We're left with a choice between answers (c) and (d).  But (c) can't be right either.  The firm is better off the bigger it is, when it has increasing returns to scale or "economies of scale."

We're left with a choice between answers (c) and (d).  But (c) can't be right either.  The firm is better off the bigger it is, when it has increasing returns to scale or "economies of scale."