In the production of bicycles an increase of 2 percent in the level of capital and labor respectively will generate an increase of 1 percent in the production of bicycles.From this information we know that the production of bicycles exhibits:
A)Diminishing marginal returns
B)Decreasing returns to scale
C)Increasing returns to scale
D)Constant returns to scale

Question

Quizplus · Accepted Answer

Decreasing returns to scale occur when a proportional increase in all inputs leads to a less than proportional increase in output. Here, a 2% increase in both capital and labor results in only a 1% increase in production, indicating decreasing returns to scale.

In the Production of Bicycles an Increase of 2 Percent