Final answer:
The correct answer to the question is option (a): Doubling all inputs in a production function that exhibits constant returns to scale will double the output.
This concept is key in a constant-cost industry, where input prices do not increase despite an increase in demand, allowing for a perfectly elastic supply curve.
Step-by-step explanation:
A production function that exhibits constant returns to scale will satisfy the condition that doubling all inputs in production will double the output.
This means that if a company uses twice as much of all of its inputs (labor, capital, materials, etc.), the output will increase by exactly twice the original amount.
In constant returns to scale, an increase in production does not affect the average cost of production, and this is characteristic of a constant-cost industry.
Here, the supply curve is very elastic, and there's a perfectly elastic supply of inputs, enabling firms to respond to changes in demand without an increase in input costs.
As for the options provided in your question, the correct answer would be (a) doubling all inputs in production, will double output.
In contrast, in economies of scale, output would more than double when inputs are doubled due to the decreased average cost of production, and in diseconomies of scale, output would less than double because the average costs increase as production scales up.