If a firm experiences increasing returns to scale, it is likely that the average total cost will decrease as production increases. True or False?

True. When a firm experiences increasing returns to scale, it means that as the firm produces more goods, the output increases by a larger percentage than the increase in input. This efficiency leads to lower average total costs because the fixed costs are spread over a larger number of products. For example, if a factory can produce 100 widgets at a cost of $1,000, the average cost per widget is $10. But if the factory doubles its production to 200 widgets and the total cost only rises to $1,500, the average cost per widget drops to $7.