IB 2017 (EOS) Paper 3 HL

IB 2017 (EOS) Paper 3 HL

I found this a lovely example of the types of question,  I expect the College Board to gavitate toward in the future. Plus it is most helpful in your understanding of Economies of Scale (EOS).

(a)  Define the term Increasing Returns to Scale.

 

 

An increase in all inputs leads to a proportionally greater increase in output or, that an increase in all inputs by X% leads to a greater than X% increase in output.

 

 

 Increasing Returns are seen when output increases 1800 to 3000 (50% increase in inputs, while output increases by 60%)

(b)  Using the date in Table 1 to support your answer, identify how changes in inputs may result in constant returns to scale & in decreasing returns to scale.

 

Constant Returns are seen when output increases from 3000 to 4000 units (33% increase in inputs and output)

Decreasing Returns to Scale are seen if output increases from 4000 units – increase in inputs – 25%, while output increases by 20%.

 

Decreasing Returns to Scale are seen if output increases from 5000 units to 6000 units as inputs increase by 20%, while output increases by 14.6%.