E. The system exhibits constant returns to scale. This is true since a given increase in both inputs causes an increase in output of the same proportion. L-shaped production isoquants reflect a perfect complementary relation among inputs, i.e., no amount of input X can make up for the lack of input Y. B. False. Returns to the capital input factor are increasing when the marginal product of capital increases as capital usage grows. Marginal revenue product is the revenue generated by expanding input usage, and represents the maximum that could be paid to expand usage.
Marginal product measures the change in output given a change in an input.
The marginal rate of technical substitution is measured by the relative marginal productivity of input factors. This relation is unaffected by a commensurate increase in the marginal productivity of all inputs. Thus, increasing returns to scale and decreasing average costs are indicated. This describes a situation of increasing average costs and diminishing returns to scale. The point of minimum average cost identifies the minimum efficient scale of plant.