Assume a firm is using 10 units of labour and 10 units of capital and is producing 10 units of output per hour. Now both inputs are doubled, resulting in output rising to 18 units per hour. The firm is experiencing
A) decreasing costs.
B) decreasing returns to scale.
C) increasing returns to scale.
D) economies of scale.
E) constant returns to scale.

Question

Quizplus · Accepted Answer

The firm is experiencing decreasing returns to scale because doubling the inputs (labour and capital) results in less than double the output (18 units instead of 20 units).

Assume a Firm Is Using 10 Units of Labour and 10