Question

If constant returns to scale is present and all inputs are increased by 10% then __________.

• A. output will increase by more than 10%
• B. output will increase by less than 10%
• C. output will increase exactly by 10%
• D. output will decrease by 10%

Answer 1

Answer: (C)

output will increase exactly by 10%

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. Thus increasing all inputs by 10% should increase all inputs by 10%. The terms in the Cobb-Douglas function are raised to the coefficeint of 1.