Final answer:
Economies of scale refers to a situation where as the level of output increases, the average cost decreases. In contrast, diseconomies of scale occur when as output increases, average costs also increase. Increasing returns to scale or economies of scale occur when a company's average cost decreases as it increases its level of production, allowing for greater efficiency and cost savings.
Step-by-step explanation:
The concept of economies of scale refers to a situation where as the level of output increases, the average cost decreases. This means that as a company grows and produces more goods or services, it can reduce its per-unit costs. For example, a company that sells electronics may be able to negotiate lower prices for raw materials or benefit from bulk purchasing to lower production costs.
On the other hand, diseconomies of scale happen when as output increases, average costs also increase. This could occur when a company becomes too large and suffers from coordination problems or inefficiencies in its operations. For example, a large corporation may have difficulty communicating and coordinating between different departments, leading to increased costs.
So, increasing returns to scale or economies of scale occur when a company's average cost decreases as it increases its level of production, allowing for greater efficiency and cost savings.