Suppose that a firm increases its inputs by 10% and observes a 13% increase in output.The firm is
A) experiencing increasing returns to scale.
B) experiencing constant returns to scale.
C) violating the law of diminishing marginal returns.
D) increasing its average cost.
E) reducing its total cost.

Question

Quizplus · Accepted Answer

The increase in input by 10% leads to a greater increase in output by 13%, indicating that the firm is experiencing increasing returns to scale. This means that as the firm increases its inputs, the output increases at a faster rate, resulting in lower costs and higher profits.

Suppose That a Firm Increases Its Inputs by 10% and Observes