Question

A constant returns to scale production function means that if all inputs are halved then output will

A. double B. fall but not by half C. incrfease but not double D. fall by half

Answer 1

Solution:

A constant returns to scale production function means that if all inputs are halved then output will D. fall by half

The law of returns to scale describes the relationship between outputs and the scale of inputs in the long-run when all the inputs are increased in the same proportion.

Three different cases

1. Increasing returns to scale
2. Constant returns to scale and
3. Decreasing returns to scale.

So In Constant returns to Scale: It occurs if a given percentage change in all inputs results in an equal percentage in output. For instance, if all inputs are doubled, output also doubles; a 10% increase in inputs would imply a 10% increase in output; and so on. Under constant returns, the firm’s input are equally productive whether or smaller or larger levels of output are produced.

So if all inputs are halved then output will fall by half