What is a firm experiencing if it quadruples all of its inputs but its output doubles?

Choose 1 answer:
A) economies of scale

B decreasing returns to scale
(c) diminishing returns to a single input

D constant returns to scale
(E) increasing returns to scale

Question

What is a firm experiencing if it quadruples all of its inputs but its output doubles?

Choose 1 answer:
A) economies of scale

B decreasing returns to scale
(c) diminishing returns to a single input

D constant returns to scale
(E) increasing returns to scale

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Returns to Scale: Returns to scale refer to the changes in output resulting from a proportional change in all inputs. ‖ ‖ b ⋮ Quadrupling Inputs: If a firm quadruples all of its inputs, it means it increases all inputs by a factor of 4. ‖ ‖ c ⋮ Doubling Output: The firm's output only doubles, which means it increases by a factor of 2. ‖ ‖ d ⋮ Decreasing Returns to Scale: When the output increases by a smaller proportion than the increase in inputs, the firm is experiencing decreasing returns to scale. Mathematically, if $Q = f(L, K)$, then $f(4L, 4K) < 4f(L, K)$. ‖ ∻Answer∻ ⚹ B) decreasing returns to scale ⚹ ∻Key Concept∻ ⚹ Decreasing Returns to Scale ⚹ ∻Explanation∻ ⚹ Decreasing returns to scale occur when a proportional increase in all inputs results in a less than proportional increase in output. In this case, quadrupling inputs only doubles the output, indicating decreasing returns to scale. ⚹◊What effect would quadrupling all inputs while doubling output have on the firm's production function in the short run?⍭ Generate me a similar question◊

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