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Question
Macroeconomics
Posted 6 months ago

Pie Claudius is a firm that produces and sells bean pies. Recently it increased its inputs by 60%60 \% and output increased by 60%60 \%.

What did this firm experience?

Choose 1 answer:
(A) decreasing returns to scale
(B) economies of scale
(C) constant returns to scale
(D) diseconomies of scale
(E) increasing returns to scale
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Answer from Sia
Posted 6 months ago
Solution
a
Returns to Scale: Returns to scale refer to how the output of a firm changes as all inputs change proportionately
b
Analysis of Given Scenario: If a firm increases all inputs by a certain percentage and the output increases by the same percentage, the firm is experiencing constant returns to scale
Answer
C. constant returns to scale
Key Concept
Constant Returns to Scale
Explanation
When a firm's output increases by the same percentage as the increase in inputs, it is experiencing constant returns to scale. This is indicative of a proportional relationship between input and output levels.

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