Which scenario below would lead to lower profits as we double the inputs used by the firm?
A) Increasing returns to scale with constant input prices
B) Constant returns to scale with constant input prices
C) Constant returns to scale with rising input prices (perhaps because the firm is not a price-taker in the input markets)
D) all of the above

Question

Quizplus · Accepted Answer

In a scenario where the firm experiences constant returns to scale with rising input prices, doubling inputs would lead to higher costs and therefore lower profits. This is because the increase in costs would not be offset by an increase in output. In the other scenarios, an increase in inputs would lead to a proportionate increase in output, which would enable the firm to generate higher profits.

Which Scenario Below Would Lead to Lower Profits as We