Suppose that three isoquants that represent 10, 20, and 30 units of output are plotted on a graph and a straight line is drawn from the origin through the isoquants. If the portion of the line between the isoquants that represent 10 and 20 units of output is longer than the portion of the line between the isoquants that represent 20 and 30 units of output, then the firm represented by these isoquants
A) has engaged in product innovation.
B) is experiencing increasing returns to scale.
C) is experiencing decreasing returns to scale.
D) will maximize profits by producing 10 units of output.

Question

Quizplus · Accepted Answer

The decreasing distance between isoquants as output increases indicates that the firm is experiencing increasing returns to scale, as less proportional increase in inputs is needed to achieve the same proportional increase in output.

Suppose That Three Isoquants That Represent 10, 20, and 30