An example of decreasing returns to scale is when capital and labor inputs:
A) both increase 10 percent and output increases 5 percent.
B) both increase 10 percent and output increases 10 percent.
C) both increase 5 percent and output increases 10 percent.
D) do not change and output increases 5 percent.

Question

Quizplus · Accepted Answer

Decreasing returns to scale occur when the percentage increase in inputs leads to a smaller percentage increase in output. In option A, a 10 percent increase in both capital and labor results in only a 5 percent increase in output, illustrating decreasing returns to scale.

An Example of Decreasing Returns to Scale Is When Capital