Answer to Question #275625 in Economics of Enterprise for emilia

Question

The table shows the inputs of two factors of production, capital and labour, needed to produce varying levels of output.

Output Capital Labour

100 5 10

200 8 16

300 14 28

400 20 40

500 26 52

Over which output range do increasing returns to scale occur.?

Answer 1

Solution:

An increasing return to scale occurs when the output increases by a larger proportion than the increase in inputs during the production process. For example, if input is increased by 3 times, but output increases by 3.75 times, then the firm or economy has experienced an increasing return to scale. When our inputs are increased by m, our output increases by more than m.

 

Increasing returns to scale occurs at output range of 200 and 300. At these outputs, there is a large proportional increase in output compared to an increase in inputs during the production process.