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Q: When a proportional increase in all input results in an increase in output by a larger proportion, the production function is said to display _______.
  • A. Increasing returns to scale
  • B. Constant returns to scale
  • C. Decreasing returns to scale
  • D. Doubling returns to scale
Correct Answer: Option A - ): Increasing returns to scale: If increase in outputs are proportionately more than an increase in quantity of all inputs, returns to scale are said to be increasing. If a firm doubles its inputs and the output increases by 2½ times then the production function exhibits increasing returns to scale.
A. ): Increasing returns to scale: If increase in outputs are proportionately more than an increase in quantity of all inputs, returns to scale are said to be increasing. If a firm doubles its inputs and the output increases by 2½ times then the production function exhibits increasing returns to scale.

Explanations:

): Increasing returns to scale: If increase in outputs are proportionately more than an increase in quantity of all inputs, returns to scale are said to be increasing. If a firm doubles its inputs and the output increases by 2½ times then the production function exhibits increasing returns to scale.