An example of increasing 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 decreases 5 percent.

Question

Quizplus · Accepted Answer

Increasing returns to scale occur when the percentage increase in output is greater than the percentage increase in inputs. In option C, a 5% increase in both capital and labor results in a 10% increase in output, exemplifying increasing returns to scale.

An Example of Increasing Returns to Scale Is When Capital