A firm experiences increasing returns to scale because of economies of scale.

In the context of production, increasing returns to scale refers to a situation in which a firm's output increases more than proportionally to the increase in inputs used for production. In other words, when the firm doubles its inputs, its output more than doubles, resulting in more efficient production.

Economies of scale refer to the cost advantages a firm gains due to its increase in production. As a firm increases its scale of production, the average production cost of its output may decrease, leading to an overall lower cost per unit. This tends to happen because larger firms can take advantage of various factors such as specialization, bulk purchasing, and more efficient utilization of resources.

As a firm experiences economies of scale, the average cost of production decreases with increasing production levels. However, the reduction in costs also implies that the firm is using its resources more efficiently and achieving higher productivity. Therefore, economies of scale lead to increasing returns to scale, as the firm can produce more output with the same input relative to firms without economies of scale.

There are several factors that contribute to economies of scale and increasing returns to scale. Some of these factors include: a. Specialization: As a firm grows, it can move towards greater specialization of its workforce. Specialization can improve overall productivity, resulting in an increase in output and reduced costs. b. Bulk purchasing: Larger firms can buy resources and inputs in bulk, allowing them to negotiate better prices or achieve discounts. This helps reduce costs and contributes to the firm's economies of scale. c. Efficient utilization of resources: As a firm increases its scale of production, it can more efficiently utilize its resources, leading to lower costs. d. Technological improvements: Larger firms can often invest in advanced technology, which increases productivity by streamlining production processes, minimizing waste, and reducing costs. These factors together result in the firm experiencing economies of scale and subsequently, increasing returns to scale.