Question

Constant returns to scale is a property of a production function _________.

• A. that holds when a proportional increase in all inputs results in an increase in output by more than the proportion
• B. that holds when a proportional increase in all inputs results in an increase in output by the same proportion
• C. that holds when a proportional increase in all inputs results in an increase in output by less than the proportion
• D. None of these

Answer 1

Answer: (B)

that holds when a proportional increase in all inputs results in an increase in output by the same proportion

Constant returns to scale: If increases in outputs is in the same proportion as increase in quantity of all inputs, returns to scale are said to be constant. The terms in the Cobb-Douglas function are raised to the coefficeint of 1.