Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets. Now it doubles both inputs resulting in a new total of 16 baskets being produced. This firm is experiencing
A) constant returns to scale.
B) increasing costs.
C) diseconomies of scale.
D) increasing returns to scale.
E) decreasing returns to scale.

Question

Quizplus · Accepted Answer

Doubling both inputs led to an increase in output by more than double (from 6 to 16). This indicates increasing returns to scale, as the increase in inputs led to a more than proportional increase in output.

Assume a Firm Is Using 6 Units of Capital and 6