When a firm increases all its inputs by 20 percent and its output rises by 15 percent,it is said to be experiencing ________ returns to scale.
A) average
B) explicit
C) increasing
D) constant
E) decreasing

Question

Quizplus · Accepted Answer

The firm is experiencing decreasing returns to scale as the increase in inputs by 20% leads to an output rise of only 15%, which means there is a diminishing marginal product of each additional input.

When a Firm Increases All Its Inputs by 20 Percent