Assume a firm is using 10 units of capital and 10 units of labour to produce 10 widgets per hour. By doubling both inputs the result is a doubling of output. This firm is experiencing
A) decreasing returns.
B) increasing costs.
C) economies of scale.
D) constant returns to scale.
E) diseconomies of scale.

Question

Quizplus · Accepted Answer

The fact that doubling both inputs leads to a doubling of output indicates that the production function exhibits constant returns to scale (CRS), meaning that increasing inputs proportionally will result in a proportional increase in output. Neither economies nor diseconomies of scale are present in this scenario because the CRS production function does not exhibit either increasing or decreasing returns as output chaFirm grows.

Assume a Firm Is Using 10 Units of Capital and 10