As a result of doubling all its inputs,if a firm can more than double its output,its production function exhibits
A) constant returns to scale.
B) increasing returns to scale.
C) decreasing returns to scale.
D) increasing marginal productivity to at least one input.

Question

Quizplus · Accepted Answer

When a firm's production function exhibits increasing returns to scale, it means that when all inputs are doubled, output more than doubles. This indicates that the firm is experiencing economies of scale, where there are cost savings due to increased production levels. In contrast, if the output exactly doubles, the production function exhibits constant returns to scale, and if the output less than doubles, the production function exhibits decreasing returns to scale. The option D) is incorrect because increasing marginal productivity to at least one input refers to the law of diminishing marginal returns, which may or may not apply to the production function.

As a Result of Doubling All Its Inputs,if a Firm