When output increases with smaller proportion compare to increase in inputs, this return is called? 1. Decreasing Return to scale 2. Increasing…

Option 1 -> When inputs increase, output increases but at a slower rate (smaller proportion).

Option 2 -> When inputs increase, output increases at a faster rate (larger proportion).

Option 3 -> When inputs increase, output increases at the same rate (equal proportion).

Option 4 -> Not a standard term for returns to scale concept.

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Hence, Decreasing Return to scale -> This occurs when all inputs are increased by a certain percentage, but output increases by a smaller percentage. For example, if labor and capital both increase by 100% (doubled), but output only increases by 50%, this represents decreasing returns to scale. This typically happens due to coordination problems, management inefficiencies, or resource constraints as operations scale up. -> correct