Return to Scale

1. Returns to Scale In the long run, solely factors be inconstant; accordingly the expansion of output may be achieved by varying all factor-inputs. When there argon changes in all factor-inputs in the same equipoise, the outdo of point of intersectionion (or the scale of operation) withal masturbate changed When the riotous changes the amount of all inputs, the resulting change in the correspond product is called the draws to scale. Assumptions: 1. All factors(inputs) be variable unless first step is fixed. 2. A worker works with stipulation tools and implements. 3. Technological changes argon absent. 4. There is perfect competition . 5. The product is measured in quantities.

The law of returns to scale with its all the leash stages (or types) is shown in the pursual example and diagram below: 100 250 change magnitude 600 1200 Constant 2400 4000 fall 7000 1 tool + 2 grate 2 machine + 4 aim 4 shape + 8 Labour 8 Machine + 16 Labour 16 Machine + 32 Labour 32 Machine + 64 Labour 64 Machine + 128 Labour A B C D E F G score Product : Returns to scale Scale of operation Machine + Labour Combination 1)Increasing returns to scale: When inputs are sum upd in a inclined proportion and output adds in a greater proportion, the returns to scale are said to be increase * Larger output associated with lower hail * One firm is more efficient than many * The isoquants deliver closer unitedly 2)Constant returns to scale: When inputs are increased in a given proportion and output increases in the same proportion, ceaseless! return to scale is said to prevail. * Size does not involve productivity * May have a large number of producers * Isoquants are equidistant apart 3)Decreasing returns to scale: A proportionate increase in all inputs results in less than proportionate increase in output, the returns to scale is said to be decreasing * Decreasing efficiency...If you call for to get a full essay, order it on our website: OrderEssay.net

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