If an economy with constant returns to scale were to double its physical capital stock,its available natural resources,and its human capital,but leave the size of the labor force the same,
A)its output would stay the same and so would its productivity.
B)its output and productivity would increase,but less than double.
C)its output and productivity would increase by more than double.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

Constant returns to scale implies that an increase in inputs by a certain percentage results in a proportionate increase in outputs. Hence, if all inputs are doubled, the output would also double. However, since the labor force is unchanged, the economy might experience diminishing returns to each factor of production as they become more scarce relative to the labor force. Therefore, the increase in output and productivity would be less than double but still increase.

If an Economy with Constant Returns to Scale Were to Double