If the percentage increase in a firm's output is lower than the percentage increase in all of its inputs, then:
A) diminishing marginal returns have begun.
B) the firm is employing the least cost combination of inputs.
C) returns to scale are constant.
D) returns to scale are decreasing.
E) returns to scale are increasing.

Question

Quizplus · Accepted Answer

This scenario indicates that the firm is experiencing decreasing returns to scale. As it increases its inputs by a certain percentage, the output does not increase at the same rate, indicating that the marginal product of each additional unit of input is decreasing.

If the Percentage Increase in a Firm's Output Is Lower