Question

When Karissa's Real Estate company goes from nine workers and three physical locations, to eighteen workers and six physical locations, the number of real estate transaction services that can be processed through the company increases from 20 transactions to 38 transactions per month. Karissa's Real Estate company has

A. constant returns to scale
B. efficiencies of scale
C. diseconomies of scale
D. economies of scale
E. None of the above

Answer 1

Karissa's Real Estate company exhibits economies of scale, as the increase in inputs (workers and locations) led to a greater, but not proportionally equal, increase in outputs (real estate transactions).

Step-by-step explanation:

The question deals with the concept of economies of scale, which refers to the situation where an increase in the quantity of output results in a decrease in the average cost per unit. Karissa's Real Estate company doubled its workers and locations, and the number of transactions it could process increased from 20 to 38 per month. However, because the company's output did not double as the inputs did (18 workers and 6 locations should ideally double the 20 transactions to 40 if the scale was constant), we can determine that there's an increase in efficiency but not proportionally with the scale of production increase. Therefore, the answer is D. economies of scale.