Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Production costs decrease
B
Production costs remain constant
C
Production costs increase
D
Production costs fluctuate unpredictably
Understanding the Answer
Let's break down why this is correct
Answer
In an increasing cost industry, as production output increases, the costs of producing each additional unit also rise. This happens because resources become less efficient when they are used more intensively, leading to diminishing returns. For example, imagine a farmer who has a fixed amount of land. As the farmer tries to grow more crops by adding more workers, each new worker contributes less to the total harvest than the previous one, making it costlier to produce the extra crops. Thus, in such industries, the more you produce, the higher the cost for each additional unit, which can affect overall pricing and profitability.
Detailed Explanation
In an increasing cost industry, as you make more products, the cost to produce each one goes up. Other options are incorrect because Some might think costs go down when making more; It's a common mistake to believe costs stay the same.
Key Concepts
production costs
diminishing returns
Topic
Increasing Cost Industries
Difficulty
medium level question
Cognitive Level
understand
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