Answer to Question #112775 in Microeconomics for Srishti

Question

A new milk shake shop has been started in the town with variety of milk shakes. If productivity of an additional labour can be described as number of visitors he can serve then answer the following

In the long run, when the owner expanded his shop, his accountant claimed that the restaurant is facing increasing returns to labour but constant return to scale. Is accountant claim is right? Justify

Answer 1

Yes, expanding the shop in the long run will mean expanding the labor which in turn increase the productivity.