Give an example of an industry with Increasing Returns to Scale. 



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Posted on (Answer #1)

There are many industries in which economies of scale can be found.  These can range from relatively small industries such as a single movie theater to large industries such as the production of electric power.

On the smaller scale, we can see that it makes more economic sense for a theater to have many screens as opposed to just one screen.  A theater that has five screens, for example, will not need five times the staff of a theater with only one screen.  For example, it will not need five people or teams selling tickets.  It will not need five separate concessions stands.  That way, the theater with five screens will have lower average costs than the theater with one screen.

On a much larger scale, companies that produce and distribute electricity can benefit from economies of scale.  A larger generator usually uses less fuel to produce a given amount of power than a small generator will.  A company with many generators together at one site will have fewer costs for things like handling fuel (per amount of electricity produced) than would be the case for a company that had just one generator.

These are two examples of industries in which economies of scale can be seen. 

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