What occurs when the total output increases as more factors of production are added?

When the total output increases as more factors of production are added, this phenomenon is referred to as increasing returns. This situation occurs when the addition of inputs, such as labor or capital, results in a more than proportional increase in output. It suggests that the efficiency of using additional inputs improves, often due to factors such as specialization of labor, better coordination, or technological advancements that allow the production process to become more efficient.

In the context of economics, experiencing increasing returns is beneficial for a firm, as it contributes to lower average costs and higher productivity levels. As more units of inputs are employed, the organization's ability to produce goods expands significantly, enhancing overall effectiveness before eventual diminishing returns might set in when the optimum capacity is reached.

The other concepts—decreasing returns, constant returns, and marginal returns—describe different scenarios in the relationship between input and output but do not apply here since they focus on other patterns of output change in relation to input increase. Therefore, the correct understanding of when total output rises significantly in response to added production factors aligns with the characteristics of increasing returns.