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JAMB Economics 1991 Question 6

Question 6

Theory of Production

If units of a variable factor are increasingly added to a fixed factor and the marginal physical product keeps increasing, production is said to be taking place under conditions of

  1. A.increasing returns to the variable factor
  2. B.increasing returns to scale
  3. C.constant returns to the variable factor
  4. D.external economies of scale
Show the answer and explanation

Answer: A (increasing returns to the variable factor)

Explanation

Only one factor is being varied and each extra unit adds more output than the last, so there are increasing returns to the variable factor (not to scale, which needs all inputs to change).