If an economy is operating inside its production possibilities curve due to underutilization of resources, which of the following statements best describes the relationship between scarcity and returns to scale?

When an economy operates inside its production possibilities curve, it means that not all resources, like labor and machines, are being used effectively. This situation shows that there is scarcity of resources because the economy is not producing as much as it could. As a result, returns to scale can be affected, meaning that if the economy starts using more resources efficiently, it can increase its output significantly. For example, if a factory has machines sitting idle and starts using them, it can produce more products without needing more raw materials. Therefore, understanding scarcity helps us see how better use of resources can lead to higher production and improved economic growth.