What is the Frank-Heggood company experiencing if it increases all of its inputs by $70 \%$ but its output increases $50 \%$ ?

Choose 1 answer:
(A) diminishing returns to a single input
(B) decreasing returns to scale
(C) constant returns to scale
(D) increasing returns to scale
(E) economies of scale

Question

What is the Frank-Heggood company experiencing if it increases all of its inputs by $70 \%$ but its output increases $50 \%$ ?

Choose 1 answer:
(A) diminishing returns to a single input
(B) decreasing returns to scale
(C) constant returns to scale
(D) increasing returns to scale
(E) economies of scale

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Returns to Scale: Returns to scale refer to how the output of a firm changes as all inputs are increased proportionally. ‖ ‖ b ⋮ Given Scenario: The Frank-Heggood company increases all inputs by $70\%$ but its output increases by only $50\%$. ‖ ‖ c ⋮ Decreasing Returns to Scale: When the percentage increase in output is less than the percentage increase in inputs, the firm is experiencing decreasing returns to scale. Mathematically, if $ \Delta Q < \Delta L + \Delta K $, where $Q$ is output, $L$ is labor, and $K$ is capital, it indicates decreasing returns to scale. ‖ ∻Answer∻ ⚹ (B) decreasing returns to scale ⚹ ∻Key Concept∻ ⚹ Decreasing Returns to Scale ⚹ ∻Explanation∻ ⚹ When a firm increases all inputs by a certain percentage but the output increases by a smaller percentage, it is experiencing decreasing returns to scale. This means that the firm is becoming less efficient as it scales up production. ⚹◊What is the relationship between the percentage increase in inputs and the percentage increase in output in this scenario according to the production function?⍭ Generate me a similar question◊

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