If the percentage increase in a firm's output is the same as the percentage increase in all of its inputs, then:
A) diminishing marginal returns have begun.
B) the firm is employing the least cost combination of inputs.
C) returns to scale are constant.
D) returns to scale are decreasing.
E) returns to scale are increasing.

Question

Quizplus · Accepted Answer

This indicates that the production function exhibits constant returns to scale, meaning that a proportional increase in inputs results in the same proportional increase in output. There is no indication of diminishing or increasing returns to scale as the proportion of inputs and outputs stay constant. The firm may or may not be employing the least cost combination of inputs, but this information cannot be determined solely based on the percentage increase in inputs and outputs being equal.

If the Percentage Increase in a Firm's Output Is the Same