A production function exhibits increasing returns to scale when you:
A) double one input-you double the output.
B) double each input-you double the output.
C) double each input-you less than double the output.
D) double each input-you more than double the output.
E) hold inputs constant-you double the output.

Question

Quizplus · Accepted Answer

A production function exhibits increasing returns to scale when doubling each input results in more than double the output. This means that the output increases at a faster rate than the increase in inputs. Thus, choice D is the correct answer. Choices A, B, and E refer to constant returns to scale, where doubling inputs results in double the output. Choice C refers to decreasing returns to scale, where doubling inputs results in less than double the output.

A Production Function Exhibits Increasing Returns to Scale When You