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:

Marginal Cost

The cost incurred by producing one additional unit of a good or service.

Demand Schedule

A spreadsheet illustrating how much of a good or service consumers are interested in and can afford to buy at various price points.

Marginal Cost

The increment in total financial outlay associated with generating one more unit of a product or service.

Demand Schedule

A table showing the quantity of a good or service demanded at various prices, depicting the relationship between price and demand.