📚 Learning Guide
Increasing Cost Industries
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In an increasing cost industry, what happens to production costs as the output increases due to diminishing returns?

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Learning Path
Learning Path

Question & Answer
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3
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Choose 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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