Answer to Question #223200 in Economics of Enterprise for Cebo

Question

Explain the three categories of returns to scale relating to the long-run average cost curve. (15 MARKS)

Answer 1

1. The first one is the constant returns to scale, refering to a relationship between output and input in which an input's increase results increases the output.

2. Increasing returns to scale comes where output tends to grow faster compared to proportion of the rise in output, which shows that a corporation forecastes a particular output quantity.

3. Decreasing returns to scale is the case in which production variables tend to be increased based on certain individual outcomes, in a percentage compared to proportional increase in output.