Suppose that when a firm increases its usage of all inputs by 100%, output increases by less than 100%. The firm's production function exhibits
A) decreasing returns to scale.
B) diminishing marginal returns.
C) decreasing marginal rate of technical substitution.
D) both a and b
E) both a and c

Question

Quizplus · Accepted Answer

This scenario describes decreasing returns to scale because when all inputs are increased by a certain percentage (100% in this case), and the output increases by a lesser percentage, it indicates that the firm is experiencing a decrease in efficiency or productivity with the increase in scale of production.

Suppose That When a Firm Increases Its Usage of All