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Unilorin Post-UTME Economics 2023 (Model questions) Question 2

Question 2

Theory of Production

When an increase in physical inputs lead to a larger percentage increase in physical output of firm, then the firm is experiencing ________

  1. A.decreasing returns to scale
  2. B.constant returns to scale
  3. C.increasing returns to scale
  4. D.diseconomies of scale
Show the answer and explanation

Answer: C (increasing returns to scale)

Explanation

If output grows by a bigger percentage than inputs (e.g. inputs +10%, output +20%), the firm has increasing returns to scale.