Engineers for the Off Road Skateboard Company determine that a 12% increase in all inputs will cause a smaller percentage increase in output. Assuming that input prices remain constant, you correctly deduce that such a change in inputs will cause ________ as output increases.

A) total costs to decrease
B) average costs to increase
C) average costs to decrease
D) average fixed costs to increase

Question

Janeth Mellado · Accepted Answer

Final Answer : B, Explanation :  When a 12% increase in inputs leads to a smaller percentage increase in output, it indicates decreasing returns to scale. This means that the cost per unit of output (average cost) will increase as output increases.

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