Question

Which situation is most likely to give rise to decreasing returns to scale? A landscaping company doubles the number of lawnmowers and gardeners, causing the owner to have trouble monitoring what all his employees are doing The government taxes the sale of sugar sweetened drinks A medical supply company doubles its assembly lines and its number of employees, allowing the employees to specialize more in the production process AJ's excavating company hires additional workers who specialize in excavator maintenance

Answer 1

A. A landscaping company doubles the number of lawnmowers and gardeners, causing the owner to have trouble monitoring what all his employees are doing.

Decreasing return to scale is a situation when the proportion of output is less than the proportion of input

For example, when the first input increased from 1 to 2, output increased from 2 to 6 but when input increased from 2 to 4 output increased from 6 to 10, this is decreasing return to scale

Here, we are seeing trouble because increasing the inputs and it will likely result in a decreasing return to scale.

In other situations, C and D, the company is unlikely to experience a decreasing scale to return and