If an increase of an equal percentage in all factors of production results in an increase in output of the same percentage, then a production function has the property called:
A) constant marginal product of labor.
B) increasing marginal product of labor.
C) constant returns to scale.
D) increasing returns to scale.

Question

Quizplus · Accepted Answer

Constant returns to scale means that when all inputs are increased by the same percentage, the output also increases by that same percentage. Therefore, an increase in equal percentage of all factors of production results in an increase of output of the same percentage, which is the definition of constant returns to scale. Choice A and B refer to marginal productivity, which is not relevant to this question. Choice D refers to increasing returns to scale, which means that when all inputs are increased by the same percentage, the output increases by a greater percentage, which is not the case in this question.

If an Increase of an Equal Percentage in All Factors