question
economic cost
answer
A payment that must be made to obtain and retain the services of a resource; the income a firm must provide to a resource supplier to attract the resource away from an alternative use; equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product.
question
explicit cost
answer
The monetary payment made by a firm to an outsider to obtain a resource.
question
implicit cost
answer
The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes a normal profit.
question
accounting profit
answer
The total revenue of a firm less its explicit costs; the profit (or net income) that appears on accounting statements and that is reported to the government for tax purposes.
question
normal profit
answer
The payment made by a firm to obtain and retain entrepreneurial ability; the minimum income that entrepreneurial ability must receive to induce entrepreneurs to provide their entrepreneurial ability to a firm; the level of accounting profit at which a firm generates an economic profit of zero after paying for entrepreneurial ability.
question
economic profit
answer
The return flowing to those who provide the economy with the economic resource of entrepreneurial ability; the total revenue of a firm less its economic costs (which include both explicit costs and implicit costs); also called "pure profit" and "above-normal profit."
question
short run
answer
In microeconomics, a period of time in which producers are able to change the quantities of some but not all of the resources they employ; a period in which some resources (usually plant) are fixed and some are variable.
question
long run
answer
In microeconomics, a period of time long enough to enable producers of a product to change the quantities of all the resources they employ, so that all resources and costs are variable and no resources or costs are fixed.
question
Review 9.1
answer
Explicit costs are money payments a firm makes to outside suppliers of resources; implicit costs are the opportunity costs associated with a firms use of resources it already owns.
question
Review 9.1
answer
Normal profit is the typical (normal) amount of accounting profit that an entrepreneur would likely earn in alternative business ventures; normal profit is the implicit cost of entrepreneurship
question
Review 9.1
answer
Accounting profit is total revenue minus explicit costs.
question
Review 9.1
answer
Economic profit is total revenue minus explicit and implicit costs, including normal profit
question
Review 9.1
answer
In the short run, a firms plant capacity is fixed. In the long run, a firm can vary its plant size and firms can enter or leave the industry.
question
total product (TP)
answer
The total output of a particular good or service produced by a firm (or a group of firms or the entire economy).
question
marginal product (MP)
answer
The additional output produced when 1 additional unit of a resource is employed (the quantity of all other resources employed remaining constant); equal to the change in total product divided by the change in the quantity of a resource employed.
question
average product (AP)
answer
The total output produced per unit of a resource employed (total product divided by the quantity of that employed resource).
question
law of diminishing returns
answer
The principle that as successive increments of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decrease.
question
fixed cost
answer
Any cost that in total does not change when the firm changes its output.
question
variable cost
answer
A cost that increases when the firm increases its output and decreases when the firm reduces its output.
question
average variable cost (AVC)
answer
A firm's total variable cost divided by output (the quantity of product produced).
question
marginal cost (MC)
answer
The extra (additional) cost of producing 1 more unit of output; equal to the change in total cost divided by the change in output (and, in the short run, to the change in total variable cost divided by the change in output).
question
Review 9.2
answer
According to the law of diminishing returns, beyond some point, output will increase by diminishing amounts as more units of a variable resource (labor) are added to a fixed resource capital.
question
Review 9.2
answer
In the short run, the total cost of any level of output is the sum of total variable costs (TC = TFC + TVC)
question
Review 9.2
answer
Averaged fixed, average variable, and average total costs are, respectively, the fixed variable, and total costs per unit of output. Marginal cost is extra cost of producing one more unit of output.
question
Review 9.2
answer
Average fixed cost declines continuously as output increases. The AVC and ATC curves are U-shaped, reflecting increasing and then diminishing returns. The MC curve falls but then rises, interesting both the AVC curve and the ATC curve at their respective minimum points.
question
economies of scale
answer
The situation when a firm's average total cost of producing a product decreases in the long run as the firm increases the size of its plant (and, hence, its output).
question
diseconomies of scale
answer
The situation when a firm's average total cost of producing a product increases in the long run as the firm increases the size of its plant (and, hence, its output).
question
constant returns to scale
answer
The situation when a firm's average total cost of producing a product remains unchanged in the long run as the firm varies the size of its plant (and, hence, its output).
question
minimum efficient scale (MES)
answer
The lowest level of output at which a firm can minimize long-run average total cost.
question
Review 9.3
answer
Most firms have U-shaped long-run average-total-cost curves, reflecting economies and then diseconomies of scale.
question
Review 9.3
answer
Economies of scale are the consequences of greater specialization of labor and management, more efficient capital equipment, and the spreading of start-up costs over more units of output.
question
Review 9.3
answer
Diseconomies of scale are caused by the problems of coordination and communication that arise in large firms.
question
Review 9.3
answer
Minimum efficient scale (MES) is the lowest level of output at which a firms long-run average total cost is at a minimum.
question
Which best describes economic costs?
answer
Payments that must be made to obtain a resource
question
Which of the following explain the concept of explicit costs? (Check all that apply.)
answer
A firm's monetary payments made for the use of resources owned by others.
A firm's monetary payments to those who supply labor services, materials, fuel, and transportation services.
A firm's monetary payments to those who supply labor services, materials, fuel, and transportation services.
question
Your company's total sales revenue for the month is $150,000; the costs to produce your products are $12,000 for rent, $6,000 for utilities, and $42,000 for employee wages. What is your accounting profit?
answer
$90,000
Reason:
$150,000 - $60,000 (explicit costs) = $90,000.
Reason:
$150,000 - $60,000 (explicit costs) = $90,000.
question
If economic cost is $96,000 and total revenue is $120,000, what is the economic profit?
answer
$24,000Reason:
Economic profit equals total revenue minus economic cost.
Economic profit equals total revenue minus economic cost.
question
Which of the following resources can a firm easily and quickly adjust?
answer
Fuel
Hourly labor
Raw materials
Hourly labor
Raw materials
question
The ______ cost of any resource used to produce a good is the value or worth the resource would have in its best alternative use.
answer
Economic
Reason:
A firm's economic costs are the sum of its explicit and implicit costs, both of which are considered opportunity costs.
Reason:
A firm's economic costs are the sum of its explicit and implicit costs, both of which are considered opportunity costs.
question
What is the definition of total product (TP)?
answer
The total quantity, or total output, of a particular good or service produced
question
Accounting profit is what remains after a firm has paid its _______ costs.
answer
Explicit
Reason:
Economic profit is the term used to describe profit that considers both explicit and implicit costs.
Reason:
Economic profit is the term used to describe profit that considers both explicit and implicit costs.
question
The law of ______ returns states that as successive units of a variable resource are added to a fixed resource, beyond some point, the marginal product will decline.
answer
diminishing
question
What is the total revenue if the economic profit is $24,000 and the economic costs are $96,000?
answer
$120,000
Reason:
Rearrange the profit formula to solve for total revenue: economic profit equals total revenue minus total economic cost.
Reason:
Rearrange the profit formula to solve for total revenue: economic profit equals total revenue minus total economic cost.
question
True or false: Hourly labor, raw materials, and fuel are examples of resources a firm can easily adjust.
answer
True
question
Average fixed cost equals total fixed cost divided by the ______.
answer
amount of output
question
How is marginal cost (MC) calculated?
answer
By dividing the change in total cost by the change in output
question
What is the term for the total quantity of a specific good produced?
answer
Total Product
question
An increase in the price of labor has no effect on which cost curve?
answer
Average-fixed-cost
question
Assuming technology and production techniques are fixed and cannot change, if beyond some point of production a firm experiences declining units of additional output with each additional unit of labor input, then the firm is experiencing the effects of the law of ______.
answer
diminishing returns
question
Identify a correct statement about an industry and its individual firms.
answer
Firms can undertake all desired resource adjustments in the long run.
question
Which costs do not vary with changes in output?
answer
fixed
question
A planning curve is another term for which of the following?
answer
Long run average-total-cost curve
question
How is average fixed cost determined?
answer
Total fixed cost divided by output
question
Learning by doing contributes to a firm's ______.
answer
economies of scale
question
What is the term for the extra cost of producing one more unit of output?
answer
marginal cost
question
True or false: Important determinants of an industry's structure are economies of scale and revenue.
answer
False
Reason:
Important determinants of an industry's structure are economies and diseconomies of scale.
Reason:
Important determinants of an industry's structure are economies and diseconomies of scale.
question
Which of the following are effects of an increase in the price of labor on the cost curves?
answer
The average-variable-cost, average-total-cost, and marginal-cost curves shift upward.
The average-fixed-cost curve remains the same.
The average-fixed-cost curve remains the same.
question
By using economies of scale, successful start-up firms are able to shift their short-run cost curves in which directions?
answer
Downward and to the right
question
What does the long-run average-total-cost curve show?
Multiple choice question.
Multiple choice question.
answer
The lowest average total cost at which any chosen output level can be produced after the firm has had time to make adjustments in plant size
question
A firm grows from one to three plants. As a result, the firm's sales increase, leading to greater marketing expertise. This is an example of which of the following?
answer
Learning by doing
question
The lowest level of output at which a firm can minimize long-run average costs is called ______.
answer
minimum efficient scale
question
_Start-up firms achieve _____________ of scale from learning by doing and through increased specialization of labor, management, and equipment.
answer
economies
question
Fill in the blanks in the table below. The problem is a "puzzle" so the blanks are not necessarily filled in sequentially.
answer
Explanation:
-Total output when labor = 30 is average product when labor = 30 (300) multiplied by total labor of 30 = 9,000
-Average product when labor = 20 is total output (4,000) divided by total labor of 20 = 200
-Average product when labor = 60 is total output (36,000) divided by total labor of 60 = 600
-Marginal product when labor = 40 is total output when labor = 40 (16,000) minus the total output when labor = 30(9,000) divided by 10 = 700
-Marginal product when labor = 60 is total output when labor = 60 (36,000) minus the total output the total output when labor = 50 (25,000) divided by 10 = 1,100
-Total output when labor = 30 is average product when labor = 30 (300) multiplied by total labor of 30 = 9,000
-Average product when labor = 20 is total output (4,000) divided by total labor of 20 = 200
-Average product when labor = 60 is total output (36,000) divided by total labor of 60 = 600
-Marginal product when labor = 40 is total output when labor = 40 (16,000) minus the total output when labor = 30(9,000) divided by 10 = 700
-Marginal product when labor = 60 is total output when labor = 60 (36,000) minus the total output the total output when labor = 50 (25,000) divided by 10 = 1,100
question
Classify the following fixed or variable costs:
answer
Fuel - Variable costs
Interest on company-issued bonds - Fixed cost
Shipping charges - Variable costs
Payments for raw materials -Variable costs
Real estate taxes - Fixed costs
Executive salaries - Fixed costs
Insurance premiums - Fixed costs
Wage payments - Variable costs
Sales taxes - Variable costs
Rental payments on leased office machinery - Fixed costs
Interest on company-issued bonds - Fixed cost
Shipping charges - Variable costs
Payments for raw materials -Variable costs
Real estate taxes - Fixed costs
Executive salaries - Fixed costs
Insurance premiums - Fixed costs
Wage payments - Variable costs
Sales taxes - Variable costs
Rental payments on leased office machinery - Fixed costs
question
Explicit costs are payments the firm makes for
answer
inputs such as wages and salaries to employees, whereas implicit costs are non-expenditure costs that occur through the use of self-owned resources such as forgone income
question
The explicit costs of going to college include
answer
The cost of tuition and books, while implicit costs include forgone income.
question
Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5,000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment's (pottery wheels, kilns, and so forth) that could earn him$4,000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3,000 per year. Total annual revenue from pottery sales is $72,000
Calculate the accounting profit and the economic profit for Gomez's pottery firm.
Calculate the accounting profit and the economic profit for Gomez's pottery firm.
answer
Accounting profit: $35,000
Economic profit: $13,000
Explicit costs are direct costs incurred from production: $37,000 (=$12,000 for the helper + $5,000 for rent + $20,000 for materials). Implicit costs are the costs that are indirectly incurred by the activity: $22,000(=$4,000 of forgone salary + $3,000 of entrepreneurship).
Accounting profit = $35,000 (=$72,000 of revenue - $37,000 of explicit costs)
Economic profit = $13,000 (=$72,000 of revenue - $37,000 of explicit costs - $22,000 of implicit costs)
Economic profit: $13,000
Explicit costs are direct costs incurred from production: $37,000 (=$12,000 for the helper + $5,000 for rent + $20,000 for materials). Implicit costs are the costs that are indirectly incurred by the activity: $22,000(=$4,000 of forgone salary + $3,000 of entrepreneurship).
Accounting profit = $35,000 (=$72,000 of revenue - $37,000 of explicit costs)
Economic profit = $13,000 (=$72,000 of revenue - $37,000 of explicit costs - $22,000 of implicit costs)
question
Which of the following statements is true?
answer
Accounting profit equals revenue minus explicit costs
question
Why do economists classify normal profits as costs?
answer
A normal profit is the amount required to ensure continued supply of the product.
question
Linda sells 100 bottles of homemade ketchup for $10 each. The cost of the ingredients, the bottles, and the labels was $700. In addition, it took her 20 hours to make the ketchup, and to do so she took time off from a job that paid $20 per hour.
answer
Linda's accounting Profit: $30
Linda's economic Profit: -$100
Linda's revenue is $1,000 (=100 bottles of ketchup sold at $10 each). Linda's explicit costs for ingredients, bottles, and labels are $700. Thus, her accounting profit (which subtracts explicit costs from revenue) is $300 (=$1,000 of revenue minus $700 of explicit costs).
Linda's Implicit cost is the opportunity cost of the 20 hours of labor that she put into making the ketchup. Because she gave up $20 per hour for each of those 20 hours of labor, the implicit cost of her labor is $400 (-$20 per hour times 20 hours) Thus, her economic profit (which subtracts both explicit costs and implicit costs from revenue) is -$100 (=$1,000 in revenue minus $700 in implicit costs minus $400 in implicit costs)
Linda's economic Profit: -$100
Linda's revenue is $1,000 (=100 bottles of ketchup sold at $10 each). Linda's explicit costs for ingredients, bottles, and labels are $700. Thus, her accounting profit (which subtracts explicit costs from revenue) is $300 (=$1,000 of revenue minus $700 of explicit costs).
Linda's Implicit cost is the opportunity cost of the 20 hours of labor that she put into making the ketchup. Because she gave up $20 per hour for each of those 20 hours of labor, the implicit cost of her labor is $400 (-$20 per hour times 20 hours) Thus, her economic profit (which subtracts both explicit costs and implicit costs from revenue) is -$100 (=$1,000 in revenue minus $700 in implicit costs minus $400 in implicit costs)
question
You are a newspaper publisher. You are in the middle of a one-year factory rental contract that requires you to pay $500,000 per month, and you have a contractual salary obligations of $1 million per month that you cant get out of. You also have a marginal printing cost of $0.25 per paper as well as marginal delivery cost of $0.10 per paper.
A. If sales fall by 20 percent from 1 million newspapers per month to 800,000 per month, what happens to the AFC per newspaper?
B. What happens to MC per newspaper?
C. What happens to the minimum amount that you must charge to break even?
A. If sales fall by 20 percent from 1 million newspapers per month to 800,000 per month, what happens to the AFC per newspaper?
B. What happens to MC per newspaper?
C. What happens to the minimum amount that you must charge to break even?
answer
A. AFC per newspaper RISES from $1.50 to $1.88
B. MC per newspaper does not change
C. It rises from $1.85 to $2.23
Explanation:
A. The original average fixed cost (AFC) was $1.50 which equals the total fixed cost of $1.5 Million divided by the number of newspapers sold (1 million, the original amount). Note here that labor is treated as a fixed costs because of the contractual obligation (you must pay even if production stops, assuming the company does not file for bankruptcy) (=$1,500,000/$1,000,000)
Now assuming sales fall by 20 percent to 800,000 newspapers sold, the new AFC is $1.88. This equals the total fixed cost of $1.5 million divided by the new number of newspapers sold, 800,000 (=$1,500,000/800,000. Thus, the AFC increases from $1.50 to $1.88 after the decrease in sales.
B. The marginal printing and marginal delivery costs are still the same; therefore, marginal costs do not change.
C. To break even before the decline in sales, the company needed to charge enough to cover the AFC $1.50, and the AVC, $0.35, which is the sum of the printing cost and delivery per news paper . Thus, the company need to charge $1.85 per newspaper.
To break even after the decline in sales, the company needs to charge enough to cover the AFC, $1.88, and the AVC, $0.35, which is the sum of the printing costs and delivery cost per newspaper (note this does not change because the cost is per newspaper). Thus, the company needs to charge $2.23 per newspaper.
B. MC per newspaper does not change
C. It rises from $1.85 to $2.23
Explanation:
A. The original average fixed cost (AFC) was $1.50 which equals the total fixed cost of $1.5 Million divided by the number of newspapers sold (1 million, the original amount). Note here that labor is treated as a fixed costs because of the contractual obligation (you must pay even if production stops, assuming the company does not file for bankruptcy) (=$1,500,000/$1,000,000)
Now assuming sales fall by 20 percent to 800,000 newspapers sold, the new AFC is $1.88. This equals the total fixed cost of $1.5 million divided by the new number of newspapers sold, 800,000 (=$1,500,000/800,000. Thus, the AFC increases from $1.50 to $1.88 after the decrease in sales.
B. The marginal printing and marginal delivery costs are still the same; therefore, marginal costs do not change.
C. To break even before the decline in sales, the company needed to charge enough to cover the AFC $1.50, and the AVC, $0.35, which is the sum of the printing cost and delivery per news paper . Thus, the company need to charge $1.85 per newspaper.
To break even after the decline in sales, the company needs to charge enough to cover the AFC, $1.88, and the AVC, $0.35, which is the sum of the printing costs and delivery cost per newspaper (note this does not change because the cost is per newspaper). Thus, the company needs to charge $2.23 per newspaper.
question
Indicate how the location of each of the following curves would be altered if (1) total fixed cost increases and (2) total variable cost decreases at each level of output.
answer
AFC HIGHER when TFC increases & NOT AFFECTED when TVC decreases.
AVC NOT AFFECTED when TFC increases & LOWER when TVC decreases.
ATC HIGHER when TFC increases & LOWER when TVC decreases.
MC NOT AFFECTED when TFC increases & LOWER when TVC decreases.
Explanation: If TFC increases, the AFC and ATC curves would be higher. The AVC and MC curves are not affected by changes in fixed costs.
If TVC decreases, MC would be lower for the first unit of output but remain the same for the remaining output. The AVC and ATC curves would also be lower, but the AFC curve would not be affected by the change in variable costs.
AVC NOT AFFECTED when TFC increases & LOWER when TVC decreases.
ATC HIGHER when TFC increases & LOWER when TVC decreases.
MC NOT AFFECTED when TFC increases & LOWER when TVC decreases.
Explanation: If TFC increases, the AFC and ATC curves would be higher. The AVC and MC curves are not affected by changes in fixed costs.
If TVC decreases, MC would be lower for the first unit of output but remain the same for the remaining output. The AVC and ATC curves would also be lower, but the AFC curve would not be affected by the change in variable costs.
question
Identify the following as fixed or variable cost for Ken & Larry's ice cream company.
answer
Advertising - Fixed - It does not change when the number of pints of ice cream produced changes
Milk for making ice cream - Variable - The amount used changes when the number of pints of ice cream produced changes.
Research & development on new flavors - Fixed - It does not change when the number of pints of ice cream produced changes.
Chocolate and other flavorings - Variable - The amount used changes when the number of pints of ice cream produce changes.
Electricity (used to run mixers and machines) - Variable - The amount used changes when the number of pints of ice cream produced changes
Office space - Fixed - It does not change when the number of pints of ice cream produced changes
Milk for making ice cream - Variable - The amount used changes when the number of pints of ice cream produced changes.
Research & development on new flavors - Fixed - It does not change when the number of pints of ice cream produced changes.
Chocolate and other flavorings - Variable - The amount used changes when the number of pints of ice cream produce changes.
Electricity (used to run mixers and machines) - Variable - The amount used changes when the number of pints of ice cream produced changes
Office space - Fixed - It does not change when the number of pints of ice cream produced changes
question
Molly spends $30 on a large cooler for her lemonade stand, her only fixed cost. What is her average fixed cost if she sells the following numbers of cups of lemonade?
answer
5 cups - $6
10 cups - $3
15 cups - $2
30 cups -$1
60 cups - $0.50
120 cups - $0.25
Average Fixed cost = Fixed cost/quantity of output. In this case, AFC = $30/Q
10 cups - $3
15 cups - $2
30 cups -$1
60 cups - $0.50
120 cups - $0.25
Average Fixed cost = Fixed cost/quantity of output. In this case, AFC = $30/Q
question
You own Drip Painting company, which employs several painters. Your newest employee says "Now that we've bought drop cloths, paint rollers, and other supplies, we should maximize the number of paint jobs we do - that way we'll spread those fixed costs over more production". You reply,
answer
"Hang on, doing more paint jobs also involves hiring more painters - That variable cost is actually much bigger than the fixed cost of equipment."
Explanation: Total cost = Fixed Cost + Variable Cost,
Average Total Cost = Average Fixed Cost + Average Variable Costs.
The employee is focusing on Fixed Costs of painting (drop cloths, paint rollers) and arguing that Average Fixed Costs will fall as output rises. This is true, but that doesn't mean that Average total Cost will always fall. The employee is ignoring Variable Costs - Paint and employees - which will rise as output rises. This can push up Average Variable Costs and Average Total Costs.
Explanation: Total cost = Fixed Cost + Variable Cost,
Average Total Cost = Average Fixed Cost + Average Variable Costs.
The employee is focusing on Fixed Costs of painting (drop cloths, paint rollers) and arguing that Average Fixed Costs will fall as output rises. This is true, but that doesn't mean that Average total Cost will always fall. The employee is ignoring Variable Costs - Paint and employees - which will rise as output rises. This can push up Average Variable Costs and Average Total Costs.
question
The owner of Central Cupcake Shop finds that when she doubles the amount of flour she buys, but makes no other changes, cupcake output rises by 60% This is an example of
answer
Decreasing marginal returns.
The concept of marginal returns considers the effect of a producer changing the quantity of one input, but holding the rest constant. In this case the fact that doubling the amount of flour resulted in a less-than double increase in cupcakes means this producer faces diminishing marginal returns. "Returns to scale" refers to what happens when all inputs are changed by the same amount.
The concept of marginal returns considers the effect of a producer changing the quantity of one input, but holding the rest constant. In this case the fact that doubling the amount of flour resulted in a less-than double increase in cupcakes means this producer faces diminishing marginal returns. "Returns to scale" refers to what happens when all inputs are changed by the same amount.
question
The owner of Central Cupcake shop finds that when she doubles all of her inputs - ingredients, ovens, workers, etc. - her output of cupcakes more than doubles. This is an example of
answer
Increasing returns to scale
The concept of Returns to Scale considers the effect of a producer changing the quantities of all inputs by the same amount. In this case, the fact that doubling all inputs led output to more-than double indicates that this producer faces increasing returns to scale. "Marginal Returns" refers to what happens to output when only one input is changed
The concept of Returns to Scale considers the effect of a producer changing the quantities of all inputs by the same amount. In this case, the fact that doubling all inputs led output to more-than double indicates that this producer faces increasing returns to scale. "Marginal Returns" refers to what happens to output when only one input is changed
question
The owner of Sour Sandwiches knows that he faces decreasing marginal returns in sandwich production. He doubles the amount of workers he employs, and makes no other changes. Sandwich output will
answer
Rise but not double
The concept of Marginal Returns considers the effect of a producer changing the quantity of one input, but holding the rest constant. Decreasing Marginal returns means that doubling one input will lead to a rise in output, but not a doubling of output.
The concept of Marginal Returns considers the effect of a producer changing the quantity of one input, but holding the rest constant. Decreasing Marginal returns means that doubling one input will lead to a rise in output, but not a doubling of output.
question
The owner of Sour Sandwiches knows he faces constant returns to scale. He doubles all of his inputs - the amount of workers, ingredients, kitchen space, etc. Sandwich output will
answer
Double
The concept of Returns to Scale considers the effect of a producer changing the quantities of all inputs by the same amount. Constant Returns to Scale means that doubling all inputs will lead to a doubling of output; Increasing returns to scale would produce a more-than doubling of output, while decreasing returns to scale will lead to a rise in output but not a doubling of output.
The concept of Returns to Scale considers the effect of a producer changing the quantities of all inputs by the same amount. Constant Returns to Scale means that doubling all inputs will lead to a doubling of output; Increasing returns to scale would produce a more-than doubling of output, while decreasing returns to scale will lead to a rise in output but not a doubling of output.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
