Refer to Figure 6.4.3. The situation pictured is one of:

A) constant returns to scale, because the line through the origin is linear.
B) decreasing returns to scale, because the isoquants are convex.
C) decreasing returns to scale, because doubling inputs results in less than double the amount of output.
D) increasing returns to scale, because the isoquants are convex.
E) increasing returns to scale, because doubling inputs results in more than double the amount of output.

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Tevita Fonohema · Accepted Answer

Final Answer : C, Explanation :  A production function exhibits decreasing returns to scale if doubling all inputs results in less than double the amount of output. This is seen in the graph as the slope of the line through the origin is less than one, indicating that increasing inputs by a certain percentage results in less than that same percentage increase in output. The convex shape of the isoquants also supports this conclusion, as it indicates that larger inputs are less efficient in producing output than smaller inputs.

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