If a firm increases its production level, the marginal cost will always decrease due to economies of scale.

When a firm increases its production level, it might expect that its marginal cost—the cost of producing one more unit—will decrease. This happens because of economies of scale, which means that as a company produces more, it can spread its fixed costs, like rent and salaries, over a larger number of products. For example, if a factory can produce 100 toys for $1,000, the cost per toy is $10, but if it increases production to 200 toys, the total cost might only rise to $1,500, making the cost per toy $7. However, it's important to note that while marginal costs often decrease with increased production, they may eventually rise again if the factory becomes too crowded or resources become limited. Thus, while economies of scale can lower costs initially, there is a limit to this effect.