A. diminishing returns
B. constant returns to scale
C. increasing returns to scale
D. decreasing returns to scale
Correct Answer:
Option D – decreasing returns to scale
Explanation
A decreasing return to scale occurs when the proportion of output is less than the desired increased input during the production process. For example, if the input is increased by 3 times, but the output is reduced 2 times, the firm or economy has experienced decreasing returns to scale.
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