When a firm faces constant returns to scale, a proportionate increase in all inputs:
A) will keep output constant.
B) will increase output by the same proportion as the increase in inputs.
C) will lead to a decline in the cost of production.
D) will result in a higher-than-proportionate increase in output.
E) will not change the total costs of production.

Question

Quizplus · Accepted Answer

Constant returns to scale imply that a proportionate increase in all inputs will lead to an increase in output by the same proportion. This means that the firm can scale up its production without facing any increase in input costs or a decline in efficiency. Therefore, the firm can benefit from economies of scale and increase its profitability.

When a Firm Faces Constant Returns to Scale, a Proportionate