If a firm had decreasing returns to scale at all levels of output and it

divided up into two equal-size smaller firms, what would happen to its overall profits?

The overall profits of the two smaller firms would be lower than the profits of the original firm. This is because when a firm has decreasing returns to scale, it means that the cost of producing one additional unit of output increases as the firm increases its output. Therefore, when the firm is divided into two smaller firms, the cost of producing one additional unit of output will be higher for each of the two smaller firms than it was for the original firm.