Final answer:
The firm is experiencing constant returns to scale, as both resources and output have increased proportionally without changing the average costs.
Step-by-step explanation:
If all resources used in the production of a product are increased by 20% and total output also increases by 20%, then the firm is experiencing constant returns to scale. This means that the scale of the production has increased proportionally with the resources, and there is no change in the average cost of production. In this case, the output and resources have both increased by the same percentage, indicating that the average costs remain the same as the output level changes, fitting the definition of constant returns to scale.
If all resources used in the production of a product are increased by 20% and total output increases by 20%, then the firm must be experiencing diseconomies of scale. Diseconomies of scale refer to a situation where as output increases, average costs also increase. Since both the resources used and the output have increased by the same percentage, it indicates that the firm is facing higher costs as a result of the increased production.