The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.
FIGURE 8- 6
-Refer to Figure 8- 6.As this firm is increasing its production of golf tees,it is experiencing returns to scale.
A)decreasing
B)diminishing
C)constant
D)increasing
E)Not determinable from the information provided.

Question

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.
  FIGURE 8- 6
-Refer to Figure 8- 6.As this firm is increasing its production of golf tees,it is experiencing returns to scale.
A)decreasing 
B)diminishing 
C)constant 
D)increasing 
E)Not determinable from the information provided.

Quizplus · Accepted Answer

As the firm increases its production of golf tees, the isoquants become closer together, indicating that the marginal product of labor is decreasing. At the same time, the isocost lines are becoming steeper, indicating that the cost of producing each unit of output is increasing. These two factors suggest that the firm is experiencing increasing returns to scale, meaning that the cost of producing each unit of output is decreasing as output increases.

The Figure Below Shows the Isocost Lines and the Isoquant