ECONOMICS (CBSE/UGC NET)

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ECONOMICS

TECHNOLOGY

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
If a firm increases its labor & capital inputs by 15% and this leads to a 12% increase in output, the firm is experiencing a ____
A
economy of scale
B
constant returns
C
diseconomy of scale
D
diminishing returns
Explanation: 

Detailed explanation-1: -Answer and Explanation: The correct answer is b. decreasing returns to scale. Decreasing returns to scale is a concept that is used by economists to describe a situation in which the increase in the number of inputs does not reflect a proportional increase in the output level.

Detailed explanation-2: -There are internal types of diseconomies of scale, like technical, organizational and financial diseconomies, and external diseconomies of scale, like infrastructure.

Detailed explanation-3: -This is an example of increasing returns to scale.

Detailed explanation-4: -As a result of increased production, the fixed cost gets spread over more output than before. It reduces per-unit variable costs. This occurs as the expanded scale of production increases the efficiency of the production process.

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