Suppose a firm uses only capital and labour to produce output.When the firm doubles the amount of both inputs,output increases by less than double.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

When the firm doubles the amount of both inputs, but output increases by less than double, it means the firm is facing decreasing returns to scale. This indicates that there is an inefficiency in the production process resulting in diminishing marginal returns.

Suppose a Firm Uses Only Capital and Labour to Produce