Suppose a firm increases all inputs by 50% and its output increases by 75%. What type of return to scale is this?
Increasing Returns to Scale
Returns to scale describe how output changes when all inputs are increased in the same proportion.
If output rises in a greater proportion than inputs, it is increasing returns to scale; equal proportion gives constant returns; smaller proportion gives decreasing returns.
Here inputs rise by 50% while output rises by 75%, i.e. output grows faster than inputs.
Hence, the answer is Increasing Returns to Scale.
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Important Questions from Microeconomics
Which of the following statement is correct?
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A.
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The cost curve which is a rectangular hyperbola is:
