An Example of Decreasing Returns to Scale Is When Capital

question 30

Multiple Choice

An example of decreasing returns to scale is when capital and labor inputs:

• A) both increase 10 percent and output increases 5 percent.
• B) both increase 10 percent and output increases 10 percent.
• C) both increase 5 percent and output increases 10 percent.
• D) do not change and output increases 5 percent.

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Definitions:

Actual Price Level

The current general price of goods and services in the economy, not adjusted for inflation.

Short-Run Aggregate Supply

The overall quantity of products and services that companies intend to offer for sale within a brief period, based on existing prices.

Aggregate Demand

Overall market demand for goods and services in an economy, determined at a prevailing comprehensive price level for a certain duration.

Equilibrium Output

The level of output where the quantity of goods produced equals the quantity of goods consumed, resulting in market equilibrium.