Which law applies to economies of scale?

The correct answer is Option 1: Increasing Returns to Scale

Economies of scale refer to cost advantages that businesses experience as their production scale increases. This occurs when the proportionate increase in output is greater than the proportionate increase in inputs, which is described by Increasing Returns to Scale (IRS).

• Increasing Returns to Scale (Option 1): When all inputs are increased proportionally, output increases at a greater rate. This leads to lower average costs per unit, which is the essence of economies of scale.