Assume a firm is using 10 units of labour and 10 units of capital and is producing 10 units of output per hour.Now both inputs are doubled,resulting in output rising to 18 units per hour.The firm is experiencing
A)constant returns to scale.
B)increasing returns to scale.
C)decreasing returns to scale.
D)economies of scale.
E)decreasing costs.

Question

Quizplus · Accepted Answer

The firm is experiencing decreasing returns to scale because doubling the inputs (labour and capital) from 10 to 20 units each only results in less than double the output, increasing from 10 to 18 units.

Assume a Firm Is Using 10 Units of Labour and 10