Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Production and Costs

Question:
In the long run, production function can display
Options:
Constant returns to scale
Increasing returns to scale
Decreasing returns to scale
All of the above
Correct Answer:
All of the above
Explanation:
When a proportional increase in all inputs results in an increase in output by the same proportion, the production function is said to display Constant returns to scale (CRS). When a proportional increase in all inputs results in an increase in output by a larger proportion, the production function is said to display Increasing Returns to Scale (IRS). Decreasing Returns to Scale (DRS) holds when a proportional increase in all inputs results in an increase in output by a smaller proportion.