Answer:
Option (b)=112 units of output was produced in 2013
Explanation:
Returns of scale refers to how much output changes given a proportional change in input, where the input changes by a constant factor.
This can be represented by the equation;
Input 2=Constant×Input 1
where;
Input 1=100 units of Labor+50 units of capital=100l+50c
Constant=k
Input 2=112 units of Labor+56 units of capital=112l+56c
Replacing;
112l+56c=k×(100l+50c)
Since k is a common factor which when multiplied by the input 1 labor and capital equals input 2 labor and capital, it can be calculated as;
k=(Input 2 labor units/input 1 labor units)=(Input 2 capital units)/Input 1 capital units)
k=(112l/100l)=(56c/50c)=1.12
To calculate the output for input 2;
Output 2=k×Output 1
where;
Output 1=the output produced by input 1=100 units
k=constant returns=1.12
Output 2=the output produced by input 2=x
Replacing;
x=100×1.12
x=112 units
Output 2=112 units
112 units of output was produced in 2013
