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

The production of bicycles exhibits decreasing returns to scale because the proportional increase in inputs (capital and labor) leads to a less than proportional increase in output (production of bicycles).

In the Production of Bicycles an Increase of 2 Percent