A firm hires three workers and rents 12 hectares of land for a season. It produces 100,000 bushels of crop. If the firm has doubled the amount of its land and labour, production would have been 180,000 bushels.

(a) Does this firm have constant, decreasing, or increasing returns to scale? Explain. (10 points)

(b) Suppose wages are $15,000 per season per person, and land rent per hectare is $4,000. Calculate the average cost of 100,000 bushels of crop and the average cost of 180,000 bushels of crop. What connection do these figures have with the farmer's return to scale? Explain. (15 points)

(c) Suppose the firm buys more land, but not more labour and applies the labour evenly over all his land. What happens to the marginal product of labour? What happens to the marginal product of land? Explain. (15 points)