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Increase in all input leading to less than proportional increase in output is called ______:
- a)Increasing returns to scale
- b)Decreasing returns to scale
- c)Constant returns to scale
- d)Both increasing and decreasing returns to scale
Correct answer is option 'B'. Can you explain this answer?
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Increase in all input leading to less than proportional increase in ou...
It occurs if a given percentage increase in all inputs results in a smaller percentage increase in output. The most common explanation for decreasing Returns involves organization factors in very large firms. ... As a result, proportional increases in output require more than proportional increases in inputs.
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Increase in all input leading to less than proportional increase in ou...
Explanation:
Returns to scale refer to the relationship between the increase in inputs and the resulting increase in output. When all inputs are increased by a certain percentage and the output increases by a proportionally less percentage, it is called decreasing returns to scale.
Example:
Suppose a factory increases its inputs by 10%, which includes labor, capital, and raw materials. However, the output only increases by 5%. This means that the factory is experiencing decreasing returns to scale.
Significance:
Decreasing returns to scale can occur due to various reasons such as inefficiencies in the production process, lack of coordination between different departments, or limited access to resources. It can result in higher unit costs of production and lower profitability for the firm.
Conclusion:
Therefore, decreasing returns to scale is an important concept in economics that highlights the relationship between inputs and output in the production process. It is important for firms to understand the reasons behind decreasing returns to scale and take appropriate measures to improve their production processes to increase their profitability.
Returns to scale refer to the relationship between the increase in inputs and the resulting increase in output. When all inputs are increased by a certain percentage and the output increases by a proportionally less percentage, it is called decreasing returns to scale.
Example:
Suppose a factory increases its inputs by 10%, which includes labor, capital, and raw materials. However, the output only increases by 5%. This means that the factory is experiencing decreasing returns to scale.
Significance:
Decreasing returns to scale can occur due to various reasons such as inefficiencies in the production process, lack of coordination between different departments, or limited access to resources. It can result in higher unit costs of production and lower profitability for the firm.
Conclusion:
Therefore, decreasing returns to scale is an important concept in economics that highlights the relationship between inputs and output in the production process. It is important for firms to understand the reasons behind decreasing returns to scale and take appropriate measures to improve their production processes to increase their profitability.
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Increase in all input leading to less than proportional increase in ou...
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Increase in all input leading to less than proportional increase in output is called ______:a)Increasing returns to scaleb)Decreasing returns to scalec)Constant returns to scaled)Both increasing and decreasing returns to scaleCorrect answer is option 'B'. Can you explain this answer?
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