Suppose a firm uses only capital and labor 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, if the output increases by less than double, it indicates that the firm is facing decreasing returns to scale, which means that the increase in inputs is resulting in a proportionately smaller increase in output.

Suppose a Firm Uses Only Capital and Labor to Produce