Question

Difficulty: MediumLong-Run Costs and Production

A telecommunications equipment assembly firm expands its operational scale in the long run by increasing all of its production inputs by $50\%$ . Consequently, its weekly output increases from $1,200$ units to $1,920$ units. What is the percentage increase in total output achieved by the firm?

Answer: 60 %

Answer

The percentage increase in total output achieved by the firm is 60%.

The firm expanded output from 1,200 units to 1,920 units, an absolute gain of 720 units. Dividing 720 by the original output of 1,200 yields 0.60, or 60%. Because the percentage increase in output (60%) exceeds the percentage increase in input scale (50%), the firm is experiencing increasing returns to scale.

Step-by-Step Solution

1

Determine the change in output volume

Change in output = 1,920 - 1,200 = 720 units

To calculate percentage growth, find the absolute difference between expanded output and initial output.

2

Calculate the percentage increase relative to initial output

(720 / 1,200) * 100 = 60%

Percentage change measures proportional growth relative to the original baseline output.

Key Concept

Long-Run Production and Scale Growth Calculations

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Topics

Long-Run Costs and Production

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