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The concept of returns to scale is related with _________.
- a)Very short period
- b)Short period
- c)Long period
- d)None of the above.
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
The concept of returns to scale is related with _________.a)Very short...
The long run refers to a time period where the production function is defined on the basis of variable factors only. ... Thus, the scale of production can be changed as inputs are changed proportionately. Thus, returns to scale are defined as the change in output as factor inputs change in the same proportion.
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The concept of returns to scale is related with _________.a)Very short...
Returns to Scale in Economics
Returns to scale is a concept in economics that refers to the relationship between the increase in inputs used in the production process and the resulting increase in output or production. It is a long-term concept that is concerned with the behavior of production when all factors of production, such as labor, capital, and technology, are increased or decreased proportionately.
Long-Run Production
The long-run is a period in economics when all factors of production are variable. In this period, a firm can increase or decrease all its inputs in any proportion. The long-run production function shows the maximum amount of output that can be produced by a firm, given the level of technology and the prices of inputs.
Returns to Scale
Returns to scale refers to the rate at which output changes when all inputs are increased by the same proportion. It is the degree to which output responds to a proportional increase in all inputs. Economists categorize returns to scale into three types: increasing returns to scale, constant returns to scale, and decreasing returns to scale.
- Increasing Returns to Scale: This occurs when output increases more than proportionately to an increase in all inputs. This means that a 10% increase in all inputs will lead to an output increase greater than 10%. This is common in industries with high fixed costs, such as telecommunications and electricity supply.
- Constant Returns to Scale: This occurs when output increases proportionately to an increase in all inputs. This means that a 10% increase in all inputs will lead to an output increase of 10%. This is common in agriculture and other primary industries.
- Decreasing Returns to Scale: This occurs when output increases at a lower rate than an increase in all inputs. This means that a 10% increase in all inputs will lead to an output increase less than 10%. This is common in industries with high labor and material costs, such as construction and engineering.
Conclusion
Returns to scale is an important concept in economics as it helps firms make production decisions in the long-run. It helps firms determine the optimal level of inputs to use to maximize output and minimize costs. Understanding returns to scale is crucial in making production decisions that lead to higher profits and economic growth.
Returns to scale is a concept in economics that refers to the relationship between the increase in inputs used in the production process and the resulting increase in output or production. It is a long-term concept that is concerned with the behavior of production when all factors of production, such as labor, capital, and technology, are increased or decreased proportionately.
Long-Run Production
The long-run is a period in economics when all factors of production are variable. In this period, a firm can increase or decrease all its inputs in any proportion. The long-run production function shows the maximum amount of output that can be produced by a firm, given the level of technology and the prices of inputs.
Returns to Scale
Returns to scale refers to the rate at which output changes when all inputs are increased by the same proportion. It is the degree to which output responds to a proportional increase in all inputs. Economists categorize returns to scale into three types: increasing returns to scale, constant returns to scale, and decreasing returns to scale.
- Increasing Returns to Scale: This occurs when output increases more than proportionately to an increase in all inputs. This means that a 10% increase in all inputs will lead to an output increase greater than 10%. This is common in industries with high fixed costs, such as telecommunications and electricity supply.
- Constant Returns to Scale: This occurs when output increases proportionately to an increase in all inputs. This means that a 10% increase in all inputs will lead to an output increase of 10%. This is common in agriculture and other primary industries.
- Decreasing Returns to Scale: This occurs when output increases at a lower rate than an increase in all inputs. This means that a 10% increase in all inputs will lead to an output increase less than 10%. This is common in industries with high labor and material costs, such as construction and engineering.
Conclusion
Returns to scale is an important concept in economics as it helps firms make production decisions in the long-run. It helps firms determine the optimal level of inputs to use to maximize output and minimize costs. Understanding returns to scale is crucial in making production decisions that lead to higher profits and economic growth.
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The concept of returns to scale is related with _________.a)Very short periodb)Short periodc)Long periodd)None of the above.Correct answer is option 'C'. Can you explain this answer?
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