Question

________ holds when a proportional increase in all inputs results in an increase in output by less than the proportion.

• A. Decreasing returns to scale
• B. Constant returns to scale
• C. Increasing returns to scale
• D. None of these

Answer 1

The correct option is A Decreasing returns to scale

Decreasing returns to scale: If increases in outputs are proportionately less than an increase in quantity of all inputs, returns to scale are said to be decreasing. The terms in the Cobb-Douglas production function are raised to a coefficeint of values lesser than 1 (but more than 0).