A railroad company lays a line of track between Houston and Dallas. It provides daily service for industrial customers and ships 5,000 ton-miles per day with a single train and only one departure and arrival at each end

It has an opportunity to purchase a second train that would allow it to ship twice the amount of ton-miles per day. Does this firm face increasing, constant or decreasing returns to scale? Explain.

The company was able to double the amount of output without necessarily doubling the amount of inputs. While it probably needs close to double the amount of labor it certainly won't need to double the amount of track since the track in place is sufficient to get the job done. Therefore, it is faces increasing returns to scale.