Which of the following is the meaning of decreasing returns to scale?

The correct answer is Option (3) → A proportional increase in all inputs results in an increase in output by less than the proportion

Under decreasing returns to scale, all inputs rise in the same proportion, but output rises by a smaller proportion.

Option (1) A proportional increase in all inputs results in a fall in total output — Incorrect. Under DRS output still rises; it only rises by less.

Option (2) A proportional increase in all inputs results in an increase in output by more than the proportion — Incorrect. A rise in output by more than the proportion is increasing returns to scale.

Option (3) A proportional increase in all inputs results in an increase in output by less than the proportion — Correct. Output rises, but by less than the inputs.

Option (4) An increase in one input, with the others fixed, results in a fall in its marginal product — Incorrect. A fall in MP with other inputs fixed is the law of diminishing marginal product, a short run idea.