The correct answer is: D. All of the above
Increasing returns to scale is a situation in which a firm’s output increases by more than the proportion of increase in its inputs. This can be explained in terms of both external and internal economies of scale.
External economies of scale are cost savings that a firm can enjoy as a result of the growth of the industry as a whole. For example, as the demand for a product increases, suppliers of inputs to the industry may be able to produce them more efficiently, leading to lower costs for all firms in the industry.
Internal economies of scale are cost savings that a firm can enjoy as it grows in size. For example, as a firm produces more output, it may be able to spread its fixed costs over a larger number of units, leading to lower average costs.
External and internal economies of scale can both lead to increasing returns to scale. However, it is important to note that they are not always present. In some cases, a firm may experience decreasing returns to scale, as its costs increase more than proportionately with its output. This can happen if the firm becomes too large and bureaucratic, or if it faces increasing competition from other firms.
Overall, increasing returns to scale can be a significant source of cost savings for firms. However, it is important to note that they are not always present, and that they can be offset by other factors, such as increasing competition.