A situation in which all inputs are doubled and output also doubles is known as?
Question
A situation in which all inputs are doubled and output also doubles is known as?Options
A)
constant proportions
B)
constant returns
C)
increasing returns to scale
D)
constant returns to scale
Related Lesson: Returns to Scale | Theory of Production
The correct answer is D.
Explanation:
When an increase in inputs (capital and labour) cause the same proportional increase in output. Constant returns to scale occur when increasing the number of inputs leads to an equivalent increase in the output, in this case, doubling.
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Discussion (2)
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When an increase in inputs (capital and labour) cause the same proportional increase in output. Constant returns to scale occur when increasing the number of inputs leads to an equivalent increase in the output, in this case, doubling.
Increasing returns to scale or diminishing cost refers to a situation when all factors of production are increased, output increases at a higher rate. It means if all inputs are doubled, output will also increase at the faster rate than double.