Question

After the initial stages of increasing returns to scale, the Firm will experience ________________________.

• A. Still Increasing Returns to Scale
• B. Constant Returns to Scale
• C. Diminishing Returns to Scale
• D. None of the above

Answer 1

The correct option is B Constant Returns to Scale

In economic terms, constant returns to scale is when a firm changes its inputs with the results being exactly the same change in outputs (production). In other words, if a firm increases its inputs they will see a proportional increase in production (or outputs).

The similar can be true if a firm decreases its inputs and that results in a proportional decrease in outputs. Constant returns to scale take place when increasing the number of inputs leads to an equivalent increase in the output.

Thus, the correct option is B.