Increasing returns imply:

(b) Diminishing cost per unit of output

(b) Diminishing cost per unit of output is the most appropriate answer

It is sometimes argued, that the presence of increasing returns implies that one product, or one technology,

out of several possible must come to dominate a market. This paper examines this argument in the context

of industrial location. It constructs a model of industry location where firms choosing among regions are

attracted by agglomeration economies due to the presence of other firms in these regions, and where "historical

accident" enters because firms are heterogeneous and enter the industry in random order. It asks:

when do economies of agglomeration lead to a "Silicon Valley"-a single dominant location monopolizing

the industry?

The paper shows that: (i) Where there is no upper bound to locational increasing returns due to agglomeration,

there will indeed be a monopoly outcome: industry will cluster in one dominant location, with

probability one. (Which location depends both on geographical attractiveness and accidential historical order

of firm entry.) (ii) Where there is an upper bound to increasing returns due to agglomeration, certain

sequences of firm entry can produce a monopoly by one location; others can produce IDeational sharing of

the industry exactly as if the agglomeration effects were absent.

Construed more generally in economics) the results show that increasing returns, if bounded, do not guarantee

monopoly outcomes.

Acknowledgments

I am grateful to the Center for Economic Policy Research at Stanford for financial support, and to Paul

David and Yuri Kaniovski for discussions. Revision of this paper is supported iu part by the Santa Fe

Institute Economic Research Program which is funded by grants from Citicorp/Citibank and the Russell

Sage Foundation and by grants to SFI from the MacArthur Foundation, the National Science Foundation

(PHY-8714918) and the U.S. Department of Energy (ER-FG05-88ER25054).

The law of diminishing returns states that in all productive processes, adding more of one factor of production, while holding all others constant ("ceteris paribus"), will at some point yield lower incremental per-unit returns.The law of diminishing returns does not imply that adding more of a factor will decrease the total production, a condition known as negative returns, though in fact this is common.

(b) Diminishing cost per unit of output

c) Optimum use of Capital and Factor ..............

>>>>>>> (b) Diminishing cost per unit of output

(b) >>>>>>>>>>>>>> Diminishing cost per unit of output

 Optimum use of capital and factor

•  

  (b) Diminishing cost per unit of output

My answer is option (b) Diminishing cost per unit of output