Statement I: There are tremendous economies of scale in entertainment and communications.
Statement II: Adams Smith's pin factory illustrates the principle of diminishing returns.

A) Statement I is true and statement II is false.
B) Statement II is true and statement I is false.
C) Both statements are true.
D) Both statements are false.

Question

Madison Dutka · Accepted Answer

Final Answer : A, Explanation :  Statement I is true as entertainment and communication industries can benefit greatly from the economies of scale due to the high fixed costs associated with producing content, such as movies or TV shows, and distributing them to a large audience. This helps to spread the cost over a greater number of units, reducing the average cost per unit.However, statement II is false as Adam Smith's pin factory is an example of increasing returns to specialization, rather than diminishing returns. Smith argued that by dividing labor and having workers focus on individual tasks, production could become much more efficient and output could increase significantly. This is the opposite of diminishing returns, which occurs when adding more inputs leads to smaller and smaller increases in output.

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