If the slope of a total production function decreases as one input increases, the firm's underlying production function exhibits:a.increasing returns to scale.b.constant returns to scale.c.decreasing returns to a factor input.d.decreasing returns to scale.
Question
If the slope of a total production function decreases as one input increases, the firm's underlying production function exhibits:a.increasing returns to scale.b.constant returns to scale.c.decreasing returns to a factor input.d.decreasing returns to scale.
Solution 1
The correct answer is c. decreasing returns to a factor input.
Here's why:
The slope of the total production function represents the marginal product of an input. If the slope decreases as one input increases, it means that each additional unit of input is producing less output than the unit before. This is known as decreasing returns to a factor input.
In contrast, increasing returns to scale refers to a situation where a proportional increase in all inputs leads to a more than proportional increase in output. Constant returns to scale refers to a situation where a proportional increase in all inputs leads to the same proportional increase in output. Decreasing returns to scale refers to a situation where a proportional increase in all inputs leads to a less than proportional increase in output.
In this case, we are only considering the change in output from increasing one input, not all inputs, so the correct answer is decreasing returns to a factor input.
Solution 2
The answer is c. decreasing returns to a factor input.
Here's why:
The slope of the total production function represents the marginal product of an input. If the slope decreases as one input increases, it means that each additional unit of input is producing less output than the unit before. This is known as decreasing returns to a factor input.
In contrast, increasing returns to scale refers to a situation where a proportional increase in all inputs leads to a more than proportional increase in output. Constant returns to scale refers to a situation where a proportional increase in all inputs leads to the same proportional increase in output. And decreasing returns to scale refers to a situation where a proportional increase in all inputs leads to a less than proportional increase in output.
Since the question is about the change in output as one input increases, not all inputs, the correct answer is decreasing returns to a factor input.
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