When the price of all inputs increase by the same percentage, the firm's total cost curve will rotate upward by a higher percentage if the firm's production technology exhibits decreasing returns to scale.

Question

Quizplus · Accepted Answer

When a firm's production technology exhibits decreasing returns to scale, an increase in all inputs by the same percentage leads to a less than proportional increase in output. However, the total cost curve reflects the cost of producing different levels of output, not the scale of production directly. The statement about the total cost curve rotating upward by a higher percentage conflates the concepts of returns to scale with the shape of the cost curve. The cost curve's shape and shift depend on cost changes and technology, not directly on returns to scale in this context.

When the Price of All Inputs Increase by the Same