Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets.Now it doubles both inputs resulting in a new total of 16 baskets being produced.This firm is experiencing
A)decreasing returns to scale.
B)increasing returns to scale.
C)constant returns to scale.
D)diseconomies of scale.
E)increasing costs.

Question

Quizplus · Accepted Answer

When the inputs are doubled, and the output more than doubles, it indicates increasing returns to scale. In this case, the firm has increased its inputs by a factor of 2, and the output has increased by a factor of more than 2 (from 6 to 16). Therefore, the firm is experiencing increasing returns to scale.

Assume a Firm Is Using 6 Units of Capital and 6