2017 (EOS) Paper 3 HL

2017 (EOS) Paper 3 HL

(a)  Define the term Increasing Returns to Scale.

 

 

An increase in all inputs leads to a proportionally greater increase in output or, that an increase in all inputs by X% leads to a greater than X% increase in output.

    Increasing Returns are seen when output increases 1800 to 3000 (50% increase in inputs, while output increases by 60%)

(b)  Using the date in Table 1 to support your answer, identify how changes in inputs may result in constant returns to scale & in decreasing returns to scale.

 

Constant Returns are seen when output increases from 3000 to 4000 units (33% increase in inputs and output)

Decreasing Returns to Scale are seen if output increases from 4000 units – increase in inputs – 25%, while output increases by 20%.

Decreasing returns to Scale are seen if output increases from 5000 units to 6000 units as inputs increase by 20%, while output increases by 14.6%.