4 Multiple-choice question (4 points, 2 each) With increasing returns to scale,

Question

4 Multiple-choice question (4 points, 2 each) With increasing returns to scale, production f(K, L) (a) definitely more than doubles when you double labor input L; (b) definitely less than doubles when you triple all inputs; (c) definitely more than doubles when you double all inputs; (d) definitely at least triples if you double all inputs The law of diminishing marginal returns (a) does not hold when the marginal product is always positive; (b) has to hold when an additional unit of capital produces more extra output than an additional unit of labor; (c) has to hold when increasing capital makes labor more productive; (d) holds when the marginal product eventually becomes smaller

Explanation / Answer

1. The correct answer is: c)

Reason: Returns to scale always refers to changing all inputs in equal proportions. With increasing returns to scale, doubling all inputs will more than double the output.

2. The correct answer is: c)

Reason: according to the law of diminishing returns, as more and more units of labor is added to same unit of capital, then the marginal returns if the additional labor falls. Thus when incre9 the capital makes labor more productive, then the diminishing marginal returns has to hold.

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