A firm has increasing returns to scale if:
A) a proportional change in the use of all inputs produces a more than proportional change in output.
B) a proportional change in the use of all inputs produces a less than proportional change in output.
C) a proportional change in the use of all inputs produces the same proportional change in output.
D) an increase in capital leads to an increase in output.

Question

Quizplus · Accepted Answer

Increasing returns to scale occur when a proportional increase in inputs results in a more than proportional increase in output. This means that if a firm doubles its inputs, it will end up more than doubling its output, demonstrating economies of scale.

A Firm Has Increasing Returns to Scale If