Increasing returns would be a situation where a firm increases its workforce and other inputs by:
A)10 percent and its output increases by 5 percent.
B)5 percent and its output increase by 10 percent.
C)8 percent and its output increases by 8 percent.
D)12 percent and its output increases by 10 percent.

Question

Quizplus · Accepted Answer

Increasing returns to scale occur when a firm increases its inputs by a certain percentage and its output increases by a higher percentage. In this case, choice B shows that when inputs are increased by 5%, the output increases by a higher percentage of 10%. This indicates that the firm is operating under increasing returns to scale. The other choices do not indicate increasing returns to scale since the output increase is not higher than the input increase.

Increasing Returns Would Be a Situation Where a Firm Increases