A production function exhibits decreasing returns to scale if: when you double e
ID: 1140729 • Letter: A
Question
A production function exhibits decreasing returns to scale if:
when you double each input, you more than double the output
when you double one input, you double the output
when you double each input, you double the output
when you double each input, you less than double the output
when you hold inputs constant, you double the output
a.when you double each input, you more than double the output
b.when you double one input, you double the output
c.when you double each input, you double the output
d.when you double each input, you less than double the output
e.when you hold inputs constant, you double the output
Explanation / Answer
Decreasing returns to scale happens when an increase in all inputs leads to a less than proportional increase in output.
For example, when a car manufaturer increases all inputs (labour and capital) by 100% but the output (cars manufactured) increases by 85%, then the car manufacturer is experiencing decreasing returns to scale.
d. when you double each input, you less than double the output.