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      Question

      If the Elasticity of Scale (epsilon) is exactly 1.2 at a

      specific level of output, a 10% increase in all inputs will lead to:
      A A 10% increase in output Correct Answer Incorrect Answer
      B A 1.2% increase in output Correct Answer Incorrect Answer
      C A 12% increase in output Correct Answer Incorrect Answer
      D An 8% increase in output Correct Answer Incorrect Answer

      Solution

      Elasticity of scale measures the percentage change in output divided by the percentage change in all inputs. Calculation: 1.2 * 10% = 12%. This indicates the firm is in the region of Increasing Returns to Scale.

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