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Microeconomics
Posted about 2 years ago
Sesi uses capital and labor in the production of cakes. When Sesi doubled the capital and labor she used, she produced twice as many cakes.
What did Sesi experience?
Choose 1 answer:
(A) increasing returns to scale
(B) diminishing returns
(C) constant returns to scale
(D) decreasing returns to scale
(E) coordination costs
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Answer from Sia
Posted about 2 years ago
Solution
a
Definition of Returns to Scale: Returns to scale refer to the changes in output when all inputs are increased proportionally
b
Constant Returns to Scale: If doubling all inputs results in a doubling of output, the firm experiences constant returns to scale
c
Application to Sesi's Scenario: Sesi doubled both capital and labor and produced twice as many cakes, indicating constant returns to scale
Answer
(C) constant returns to scale
Key Concept
Constant Returns to Scale
Explanation
When a firm increases all inputs by a certain proportion and the output increases by the same proportion, it is experiencing constant returns to scale. In Sesi's case, doubling both capital and labor resulted in doubling the output, which is a clear indication of constant returns to scale.
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