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CUET Economics 2025 PYQs31 May Shift 1. Free, no login required.

Micro

past year questions, CUET Economics 2025 31 May Shift 1

Production & Costs

past year questions, Micro, CUET Economics 2025 31 May Shift 1

Easy

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Law of Variable Proportion and Return to Scale.

The law of variable proportions arises because factor proportions change as long as one factor is held constant and the other is increased. What if both factors can change? Remember that this can happen only in the long run. When a proportional increase in all inputs results in an increase in output by the same proportion, the production function is said to display Constant returns to scale (CRS).

When a proportional increase in all inputs results in an increase in output by a larger proportion, the production function is said to display Increasing Returns to Scale (IRS). Decreasing Returns to Scale (DRS) holds when a proportional increase in all inputs results in an increase in output by a smaller proportion.

When output increases with the same proportion as increase in inputs, this concept is known by?

  1. Marginal diminishing returns.
  2. Decreasing return to scale.
  3. Increasing return to scale.
  4. Constant Return to scale.

Solution

✅ Correct Option: 4

Option 1 -> Marginal diminishing returns.

Marginal diminishing returns refers to decreasing additional output when one variable input is increased while other inputs remain fixed. This is not about proportional changes in all inputs.

Option 2 -> Decreasing return to scale.

Decreasing returns to scale occurs when output increases by a smaller proportion than the increase in all inputs (e.g., inputs double but output increases by less than double).

Option 3 -> Increasing return to scale.

Increasing returns to scale occurs when output increases by a larger proportion than the increase in all inputs (e.g., inputs double but output more than doubles).

Option 4 -> Constant Return to scale.

Constant returns to scale occurs when output increases by exactly the same proportion as the increase in all inputs (e.g., inputs double and output also doubles).

Hence, Constant Return to scale -> When all inputs are increased by a certain proportion and output increases by exactly the same proportion, this is known as constant returns to scale. For example, if labor and capital both increase by 20%, and output also increases by 20%, the production function exhibits constant returns to scale. This concept is fundamental in production theory and helps firms understand their optimal scale of operations. -> correct

More from this set:

Question 41

The core reason behind the arising law of proportion is............

  1. Factor proportion changes with keeping one factor constant.
  2. Decrease in all input.
  3. Increase in all input.
  4. All factors remain constant.

Question 42

When output increases with smaller proportion compare to increase in inputs, this return is called?

  1. Decreasing Return to scale
  2. Increasing Return to scale.
  3. Constant Return to scale.
  4. Incremental Productivity.

Question 43

Suppose in a production process, all inputs get doubled. As a result, if the output gets doubled, the production function exhibits?

  1. Decreasing Return to scale.
  2. Incresing Returns to scale.
  3. Constant Return to scale.
  4. Decresing Productivity.

Question 45

When output increases with the larger proportion compare to increase in inputs, this return is called?

  1. Decreasing Return to scale.
  2. Increasing return to scale.
  3. Constant Return to scale.
  4. Diminishing Marginal Product.

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