CMA Foundation · Fundamentals of Business Economics and Management · Means of Production
A firm's production function shows the following: with 10 units of all inputs output is 200; with 20 units of all inputs output is 400; with 40 units of all inputs output is 800. What type of returns to scale does the firm experience over this range?
The firm has constant returns to scale. Each doubling of all inputs, from 10 to 20 and then to 40 units, exactly doubles output, from 200 to 400 and then to 800. Output changes in the same proportion as inputs.
- AIncreasing returns to scale
- BDecreasing returns to scale
- CConstant returns to scaleCorrect
- DNegative returns to scale
Explanation
Inputs double from 10 to 20 and output doubles from 200 to 400. Inputs double again to 40 and output doubles again to 800. Output changes in exactly the same proportion as inputs, which is constant returns to scale. Decreasing returns would need output to rise by less than double.
Did you get it right without looking?
One question tells you little. A timed set on Means of Production shows your real accuracy, how long you take and where you lose marks.
More Means of Production questions
- An entrepreneur introduces a new method of producing low-cost water purifiers that had not been used before in the market. Which function of…
- Adam Smith's pin factory example, used to illustrate division of labour, shows that the increase in productivity arises mainly because of:
- Which of the following is a feature that distinguishes labour from the other factors of production?
- Which of the following is an example of the entrepreneur's risk-bearing function that is generally regarded as UNINSURABLE and therefore tru…
- A textile unit in Surat doubles all its inputs (labour, machines and raw material) and finds that its output rises by exactly 100%. Which re…
- A Pune engineering firm expands its plant. When all inputs are increased by 50%, output rises by 20%. Output was 5,000 units originally. Ass…