At a production level of 6 units, A. there are increasing returns to scale.
How to find the returns to scale ?
To determine whether there are increasing, constant, or decreasing returns to scale, we can compare the change in total cost to the change in the level of production.
Total cost of producing 5 units: $300
Total cost of producing 6 units: $330
The change in total cost from producing 5 to 6 units is:
Change in Total Cost = Total Cost (6 units) - Total Cost (5 units)
= $330 - $300
= $30
Calculate the percentage change in total cost:
Percentage Change = (Change in Total Cost / Total Cost at 5 units) x 100
Percentage Change = ($30 / $300) * 100
= 10%
Since the percentage change in total cost (10%) is positive when increasing production from 5 to 6 units, this indicates increasing returns to scale.