Answer to Question #223903 in Microeconomics for Raksha

Question

Ethan’s Bagels is able to produce 100 bagels a day with 10 workers and 10 stations. Which of the following input levels show the largest returns to scale given the output?


15 workers, 15 stations, 138 bagels
20 workers, 20 stations, 227 bagels
25 workers, 25 stations, 246 bagels
30 workers, 30 stations, 260 bagels
35 workers, 35 stations, 270 bagels

Answer 1

Solution:

The correct answer is B. 20 workers, 20 stations, 227 bagels.

 

A return to scale refers to the quantitative change in output of a firm resulting from a proportionate increase in all inputs. If the number of output increases by a greater proportion, that is, if output increases by 2.5 times or more in response to doubling all inputs, the production process is said to express increasing returns to scale. This is because greater efficiency is attained as the company moves from small to large-scale operations.

Ethan’s bagels were able to increase their output by 127 through doubling their inputs, which was much more compared to the other inputs increases.