(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%.
