Identify the true statement.
A)Decreasing returns to scale and diminishing marginal returns are just two different ways of saying the same thing.
B)Returns to scale pertains to the impact on output of increasing all inputs simultaneously; diminishing marginal returns pertains to the impact of changing a single input while holding all other inputs constant.
C)Returns to scale pertains to the impact on output of changing a single input while holding all other inputs constant; diminishing marginal returns pertains to the impact on output of increasing all inputs simultaneously.
D)Returns to scale can be identified by calculating the slope of an isoquant.

Question

Quizplus · Accepted Answer

Decreasing returns to scale refers to the proportional decrease in output as all inputs are increased proportionally. Diminishing marginal returns, on the other hand, refers to the decrease in additional output from increasing one input unit while holding all other inputs constant. Returns to scale pertains to the impact on output of increasing all inputs simultaneously, while diminishing marginal returns pertains to the impact of changing a single input while holding all other inputs constant. Option D is incorrect as returns to scale can be identified by examining the shape of isoquants, not their slope. Returns to scale refers to the impact of increasing all inputs simultaneously, while diminishing marginal returns pertains to the impact of changing a single input while holding all other inputs constant. These are two distinct concepts. Option A is incorrect because decreasing returns to scale and diminishing marginal returns are not the same thing. Option C is incorrect because it defines the two concepts in reverse. Option D is incorrect because returns to scale cannot be identified by calculating the slope of an isoquant; rather, they are determined by looking at the percentage change in output resulting from a proportionate change in all inputs.

Identify the True Statement