Which of the following statements is TRUE?
A)A Cobb-Douglas production function can have different returns to scale at different output levels.
B)It is impossible to have increasing returns to scale for one output level, and decreasing returns to scale for a different output level.
C)It is possible to have increasing returns to scale for one output level, and decreasing returns to scale for a different output level.
D)None of the above.

Question

Quizplus · Accepted Answer

According to the concept of returns to scale, if inputs are increased by a certain percentage, output should also increase by the same percentage. However, this may not hold true for all levels of output. Therefore, it is possible for a production function to exhibit increasing returns to scale at a certain level of output and decreasing returns to scale at a different level of output. This means that output may not increase proportionally with inputs beyond a certain point, leading to diminishing returns to scale. Therefore, option C is correct. Option A is incorrect because a Cobb-Douglas production function assumes constant returns to scale, which means the relationship between inputs and output is proportional at all levels of output. Option B is incorrect because it is not possible for a production function to have increasing returns to scale for one output level and decreasing returns to scale for a different output level.

Which of the Following Statements Is TRUE