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Difficulty: MediumScales of Production and Economies of Scale

A textile manufacturing firm operating in Kano State increases all of its factor inputs by 50%50\% in order to expand its scale of production. Following this scale expansion, the firm's total weekly output of fabric rises from 20,000 meters20,000\text{ meters} to 35,000 meters35,000\text{ meters}. What is the percentage increase in the firm's total output?

Answer: 75 %

Answer

The percentage increase in total output is 75%75\%, indicating that output grew at a faster rate than inputs (75%>50%75\% > 50\%), which reflects increasing returns to scale.
The correct calculation evaluates the change in output relative to the initial output: 35,000−20,00020,000×100%=75%\frac{35,000 - 20,000}{20,000} \times 100\% = 75\%. Since output increased by 75%75\% while inputs were scaled up by 50%50\%, the firm experienced increasing returns to scale (economies of scale).

Step-by-Step Solution

1
Calculate the absolute increase in weekly output
35,000 meters−20,000 meters=15,000 meters35,000\text{ meters} - 20,000\text{ meters} = 15,000\text{ meters}
To find the percentage change, the magnitude of output expansion must first be determined.
2
Calculate the percentage increase relative to the base output
(15,00020,000)×100%=75%\left(\frac{15,000}{20,000}\right) \times 100\% = 75\%
Percentage increase measures the proportionate change from the baseline level of output.

Key Concept

Calculating Percentage Change in Output and Identifying Returns to Scale
Estimated Time:1m 15s
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Topics

Scales of Production and Economies of Scale

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