Question

If there is an increase of t times in factors of production as a result of which output increases t times, then what will this be called?

• A. Increasing returns to scale
• B. Decreasing returns to scale
• C. Constant returns to scale
• D. None of these

Hint:

Constant returns to scale occur when output increases exactly in proportion to the increase in inputs.

Answer 1

The Correct Option is C

Step 1: Understanding returns to scale.
Returns to scale describe how output changes in response to proportional changes in all inputs. If the increase in output is exactly proportional to the increase in inputs, this is called constant returns to scale.

Step 2: Analyzing the options.
(A) Increasing returns to scale: This would occur if output increases by more than the proportional increase in inputs. This is not the case here, as output increases in the same proportion as inputs.
(B) Decreasing returns to scale: This would occur if output increases by less than the proportional increase in inputs. This is also not the case here.
(C) Constant returns to scale: Correct. If all inputs are increased by a factor of t and output increases by exactly the same factor, this is constant returns to scale.
(D) None of these: This is incorrect because the correct answer is (C) Constant returns to scale.

Step 3: Conclusion.
The correct answer is (C) Constant returns to scale, as the output increases in the same proportion as the increase in inputs.