When the price of all inputs increase by the same percentage, the firm's total cost curve will rotate upward by a higher percentage if the firm's production technology exhibits increasing returns to scale.

Question

Quizplus · Accepted Answer

When a firm's production technology exhibits increasing returns to scale, it means that output increases by a larger proportion than the increase in inputs. Therefore, if the price of all inputs increases by the same percentage, a firm with increasing returns to scale would see its total cost curve shift upward, but not necessarily by a higher percentage than the increase in input prices, because the firm gets more output per unit of input as it scales up.

When the Price of All Inputs Increase by the Same