In Example 6

question 23

Multiple Choice

In Example 6.5 in the book, the authors use the observed production data from the U.S. carpet industry to show that small firms likely have constant returns to scale and that large firms likely have increasing returns to scale. Are returns to scale in this industry likely to continue increasing as these firms become even larger?

• A) Yes, the marginal products of labor and capital are known to be positive at all levels of output in the U.S. carpet industry, which implies continued increasing returns to scale.
• B) Yes, increasing returns are always observed in other countries that produce carpeting on large scale.
• C) No, the authors predict that returns to scale in carpet production will likely decline at some point.
• D) The authors do not provide any comments on this issue.

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Definitions:

Taxes on Earnings

Levies imposed by a government on individuals' or entities' income from work or investment.

Real GDP

The total value of all goods and services produced within a country adjusted for inflation, representing the economic output.

Aggregate Demand

The complete call for all products and services inside an economy, priced at a certain level, over a fixed time span.

President Barack Obama

The 44th President of the United States, serving from 2009 to 2017, known for being the first African American to hold the office and implementing policies like the Affordable Care Act.