Economics Homework Help

Question

Babsie loves to shop at Costco. After Babsie purchased her usual hot dog and coke, she decided to go shopping. Babsie likes the idea that the more peanut butter she buys, the more she saves. This is an example of

a. increasing returns to scale

b. decreasing returns to scale

c. constant returns to scale

d. none of the above

Answer 1

The answer is: a. increasing returns to scale

Babsie is excited because she will purchase a higher quantity of peanut butter at a lower per unit price. This means each unit will cost her less than if she bought a smaller amount at a different store. This concept is also called economies of scale.