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:

Visual Information

Data and insights obtained through the sense of sight, interpreted by the brain to understand the environment.

Wavelengths

The measurement from one peak to the next in a wave, particularly in the context of sound waves or electromagnetic waves.

Red Object

An item distinguished primarily by its red color, which can elicit strong reactions due to the color’s psychological impact.

Rejects

Items that are discarded or deemed unfit for use or sale, usually due to failure to meet quality standards or specifications.