An example of decreasing returns to scale is when capital and labour inputs:
A)both increase 10 percent and output increases 5 percent.
B)both increase 10 percent and output increases 10 percent.
C)both increase 5 percent and output increases 10 percent.
D)do not change and output increases 5 percent.

Question

Quizplus · Accepted Answer

Decreasing returns to scale occur when an increase in inputs leads to a less than proportional increase in output. In choice A, both inputs increase by 10%, but output only increases by 5%, indicating decreasing returns to scale.

An Example of Decreasing Returns to Scale Is When Capital