The correct answer is:

increases output by 50%.

Explanation:

Increasing returns to scale occurs when a proportional increase in all inputs leads to a greater proportional increase in output. If you increase all inputs by 25%, and the production function exhibits increasing returns to scale, then the output will increase by more than 25%. In this case, it increases by 50%, which is a greater increase than the input increase.

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Here are some related questions to explore further:

1. What is the difference between increasing, constant, and decreasing returns to scale?
2. How do economies of scale relate to increasing returns to scale?
3. How do input prices affect returns to scale?
4. What are some real-world examples of industries experiencing increasing returns to scale?
5. How does technology impact returns to scale?

Tip: Returns to scale are related to the long-run production function, where all inputs can be varied, unlike in the short run, where some inputs remain fixed.