Increasing returns to scale:
A) occur only where marginal returns are increasing.
B) cannot occur if all inputs have diminishing returns.
C) imply imperfect capital market returns.
D) result from just-in-time production.
E) are consistent with diminishing marginal returns by all inputs.

Question

Quizplus · Accepted Answer

Increasing returns to scale refer to a situation where output increases by a larger proportion than the increase in inputs, which can still occur even if each input exhibits diminishing marginal returns. This is because the concept of returns to scale pertains to the proportionate increase in output relative to a proportionate increase in all inputs, while diminishing marginal returns relate to the additional output from an additional unit of a single input, holding all other inputs constant.

Increasing Returns to Scale