Question

A firm increases all of its inputs by 25%. As a result, output increases by 18%. This firm experiences

Answer 1

ANSWER;

As we see in question that a firm has increased all of its factors by 25%, this is a case of long run because all inputs are increased. But the result in output is seen to be increased only by 18% less than increase in inputs. So, as inputs are increased output also increases but less than proportionatly so it is a case of Decreasing Returns To Scale (DRS).

DRS is a case when output increases in small proportion than the increase in all inputs. Therefore, the above stated firm experiences Decreasing Returns to Scale in its production process.