A firm has increasing returns to scale if: a proportional change in the use of all...

A firm has increasing returns to scale if:

a proportional change in the use of all inputs produces a more than proportional change in output.

a proportional change in the use of all inputs produces a less than proportional change in output.

a proportional change in the use of all inputs produces the same proportional change in output.

an increase in capital leads to an increase in output.

Expert Solution

As per law of increasing return to scale: the output increases with increase in output. Also, the increase in output is more than the increase in input.

ANSWER- Hence by the defination of law: a proportional increase in the use of all inputs produces a more than proportional change in output.

For example : say input earlier was 10units and output was 100 units. Now inputs is increased to 15 units and thus output increased to 500 units. In this case, the increase in input was only by 5 but output increased by 400 units. It is a huge increase by just employing 5 units of input. So this is the case as above.

Thus all other options are irrelavant.

Rahul Sunny answered 2 years ago

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