Multiple choice

If as a result of 50 percent increase in all inputs, the output rises by 75 per cent, this is a case of

  1. increasing returns to a factor

  2. increasing returns to scale

  3. constant returns to a factor

  4. constant returns to scale
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When ALL inputs increase by 50% and output increases by 75%, this is increasing returns to scale. Returns to scale refer to output response when ALL inputs are changed proportionally (long-run phenomenon). Returns to a factor refers to changing only one input while holding others constant (short-run). Since all inputs changed, this is returns to scale, and since output increased more than inputs, returns are increasing.

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