Answer to Question #223597 in Macroeconomics for Cebo

Question

1. Explain the three categories of returns to scale relating to the long-run average cost curve

May i have more detailed answer, my question is (15 marks)

Answer 1

Returns to scale mean the rate by which output changes if all the inputs are changed by the same factor and in other cases the constants return to scale there are three types or three ways the return to scale measures that there is a change in out input and output will change this is a constant returns to scale that meet output and inputs are saying and if the under the increasing return to scale the change in the output is more and if the reason decreasing to return to scale it is less then input out changed compare to output changes.

Average total cost means dividing the total cost by that when the total quantity of producers by the company the total cost curve is typically u-shaped and it is based on that a curve moves in an upward direction and it is a positive impact and its slopes to down but then it shows a negative impact it is the common bifurcation of all the cost curve in the economy.

There are three categories of return to scale they are as follows: constant returns to scale means where there is an increase in the input result in an increase in output is there is a constant relation between input and output.

Increasing returns to scale: is when output is increasing greater than the proportion then the increase in the output it means that if a company has predicted some amount of output while lying on the basis of input they have put in the production on the basis of that the output has been more than they have predicted it so that's why this is called increasing returns to scale.

Decreasing returns to scale: is where the production variables are increased by certain personal results in less than the proportional increase in the output it is the reverse of increasing returns to scale.

For example, if a detergent manufactures double its input but get only a 30% increase in a total of 28 it can have said the decreasing returns to scale if the same manufactures end up doubling its total output and it achieves constant returns to scale that means that the input has increased by 60% then he will get the 60% output if the output is increased by 110 % then the manufacture experience the increasing returns to scale has the return to scale is your only based on the input or the percentage of put the company is inputting in in the production and we just can predict the output on this and decide whether it is constant decrease or increase returns to scale.