Suppose that a firm's total cost of producing an output of 400 units a day is currently $2,000.If technology and the price of inputs remain unchanged,what level of output would be produced if total cost rises to $4,000 and increasing returns to scale exist?
A)5 units.
B)More than 400 but less than 800 units.
C)800 units.
D)More than 800 units.

Question

Quizplus · Accepted Answer

With increasing returns to scale, doubling the input (cost in this case) results in more than doubling the output. Therefore, if the cost doubles from $2,000 to $4,000, the output will be more than double the initial 400 units, indicating more than 800 units would be produced.

Suppose That a Firm's Total Cost of Producing an Output