Question

question 18
0.5 pts
in a production process, all inputs are increased by 10%; but output increases less than 10%. this means that the firm experiences
constant returns to scale.
increasing returns to scale.
negative returns to scale.
decreasing returns to scale.

Explanation:

• Constant returns to scale: Output increases proportionally with inputs (e.g., 10% input increase leads to 10% output increase).
• Increasing returns to scale: Output increases more than proportionally with inputs (e.g., 10% input increase leads to more than 10% output increase).
• Negative returns to scale: Not a standard term in the context of returns - to - scale analysis (usually we talk about increasing, constant, and decreasing).
• Decreasing returns to scale: Output increases less than proportionally with inputs (e.g., 10% input increase leads to less than 10% output increase).

Answer:

decreasing returns to scale.