Question

Increasing 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 the same proportion
• B. that holds when a proportional increase in all inputs results in an increase in output by more than the 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 more than the proportion

Increasing returns to scale: If increases in outputs are proportionately more than an increase in quantity of all inputs, returns to scale are said to be increasing. The terms in the Cobb-Douglas production function are raised to a coefficeint of values greater than 1.