If input prices are constant, a firm with increasing returns to scale can expect:
A) costs to double as output doubles.
B) costs to more than double as output doubles.
C) costs to go up less than double as output doubles.
D) to hire more and more labor for a given amount of capital, since marginal product increases.
E) to never reach the point where the marginal product of labor is equal to the wage.

Question

Quizplus · Accepted Answer

With increasing returns to scale, a firm can increase its output more than proportionally to its increase in inputs, resulting in lower costs per unit of output. This means that costs will go up less than double as output doubles.

If Input Prices Are Constant, a Firm with Increasing Returns