Suppose a firm uses 200 units of capital and 1,000 workers to produce 10,000 units of output.When the firm employs 3,000 workers and uses 600 units of capital,output increases to 45,000 units.This firm exhibits:
A) increasing returns to scale.
B) decreasing returns to scale.
C) constant returns to scale.
D) diminishing marginal returns.

Question

Quizplus · Accepted Answer

Increasing returns to scale occur when output increases by a greater proportion than the increase in inputs used in production. In this scenario, the firm doubled both inputs (capital and labor) and output increased more than four-fold, indicating increasing returns to scale.

Suppose a Firm Uses 200 Units of Capital and 1,000