Question

If all inputs are increased t(t>1) times such that output also increases t times, then what is this called?

• A. Constant returns to scale
• B. Increasing returns to scale
• C. Diminishing returns to scale
• D. None of these

Hint:

Increasing returns to scale occur when output increases by a greater proportion than the increase in inputs.

Answer 1

The Correct Option is B

Step 1: Understanding returns to scale.
Returns to scale refers to how the output changes in response to a proportional increase in all inputs. If the output increases by more than the proportional increase in inputs, this is called increasing returns to scale.

Step 2: Analyzing the options.
(A) Constant returns to scale: This occurs when the output increases in the same proportion as the increase in inputs.
(B) Increasing returns to scale: Correct. If all inputs are increased by a factor of t (where t>1) and the output increases by more than t, then we have increasing returns to scale.
(C) Diminishing returns to scale: This occurs when the output increases by less than the increase in inputs.
(D) None of these: This is incorrect because the correct answer is (B) Increasing returns to scale.

Step 3: Conclusion.
The correct answer is (B) Increasing returns to scale, as the output increases more than proportionally to the increase in inputs.