Suppose That an Economy with Constant Returns to Scale Doubled

question 120

Multiple Choice

Suppose that an economy with constant returns to scale doubled its physical capital stock, doubled its available natural resources, and doubled its human capital, but kept the size of the labour force the same. How does the change in output compare to the change in productivity?

• A) Output would stay the same and so would its productivity.
• B) Output and productivity would increase, but by less than double.
• C) Output and productivity would increase by more than double.
• D) Output would increase by less than double, but productivity would double.

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Definitions:

Profit Change

The difference in profit amounts between two periods, indicating an increase or decrease in profitability.

Unit Profit

The amount of income that derives from selling one unit of a product after deducting the unit cost of producing that product.

Decision Variables

The variables in a mathematical model that decision makers will seek to determine or control.

Optimal Values

The most favorable or efficient values that lead to the best outcome in a given situation or model.