Question

If increasing 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: (A)

output will increase by more than 10%

Increasing returns to scale: If increases in output is proportionately more than an increase in quantity of all inputs, returns to scale are said to be increasing. Thus a 10% increase in inputs will yield a more than 10% increase in output. The terms in the Cobb-Douglas function are raised to the coefficeints more than 1.