In a production process if all inputs get tripled, then which of the following…
2021
In a production process if all inputs get tripled, then which of the following statements will follow? I. If output is tripled, then decreasing returns to scale holds. II. If output is doubled, then constant returns to scale holds. III. If output is more than tripled, then increasing returns to scale holds.
- A.
Only II
- B.
Only III
- C.
I and II
- D.
I and III
Attempted by 17 students.
Show answer & explanation
Correct answer: B
Returns to Scale measures how output changes when all inputs change proportionally.
Statement I: Tripling inputs and tripling output = Constant Returns to Scale (not decreasing).
Statement II: Tripling inputs and doubling output = Decreasing Returns to Scale (not constant).
Statement III: Tripling inputs and output more than triples = Increasing Returns to Scale.
Conclusion: Only Statement III is correct.
Final Answer: Option 2