Suppose a shipping company employs 2000 workers,operates 400 delivery trucks and makes 1.5 million domestic shipments in one year.The next year they increase their workforce to 3000 workers,operate 600 trucks and make 2.8 million domestic shipments in one year.This firm is exhibiting returns to scale.
A)increasing
B)marginal
C)decreasing
D)constant
E)variable

Question

Quizplus · Accepted Answer

The firm is exhibiting increasing returns to scale because as they increase their inputs (workers and trucks), they are able to produce a more than proportional increase in output (shipments). Specifically, the firm increased its workers by 50% (from 2000 to 3000), increased its trucks by 50% (from 400 to 600), and increased its shipments by 87% (from 1.5 million to 2.8 million). This indicates that the firm is taking advantage of economies of scale and experiencing increasing returns as it grows.

Suppose a Shipping Company Employs 2000 Workers,operates 400 Delivery Trucks