Question

4. The rate of output for a product was 1,000 units per month. The

company increased all inputs by 20 percent and output increased
to 1,500 units per month. Are the returns to scale increasing,
decreasing, or constant for this product? What should happen to
the production cost per unit?

Answer 1

Step-by-step explanation:

Company increases the input by 20%

increase in output in percentage terms

= [(1500 - 1000) / 1000 ] x 100

= 50 %

So percentage increase in output is more than percentage increase in input

hence there is increasing return to scale at this product.

In case of increasing return to scale , cost of production per unit decreases .

There is increasing efficiency in production .