Many mining and mineral extraction processes tend to exhibit increasing returns to scale. Suppose copper mines have increasing returns, and the existing copper mines reduce their capital and labor inputs by 25 percent in response to a global recession. What is the expected impact on copper output?
A) Output increases by less than 25 percent.
B) Output decreases by less than 25 percent.
C) Output decreases by exactly 25 percent.
D) Output decreases by more than 25 percent.

Question

Quizplus · Accepted Answer

Since copper mines have increasing returns to scale, reducing inputs by 25 percent will result in a decrease in output by more than 25 percent. The exact amount of decrease in output will depend on the specific production function and the degree of increasing returns to scale.

Many Mining and Mineral Extraction Processes Tend to Exhibit Increasing