Increasing returns to scale and decreasing returns to scale, Microeconomics

Assignment Help:

Increasing returns to scale and decreasing returns to scale:

Increasing returns to scale occur when increases in all inputs by a certain percentage cause a relatively higher percentage increase in output or total product. For instance when units of capital and labour are doubled (i.e. 100% increase in scale of production) if output more than doubles (say increase by 150%), then the firm is experiencing increasing returns to scale.

On the other hand, decreasing returns to scale occur when the scale of production of a firm is increased by a certain percentage, output or total product increases by less than the given percentage. The total product indeed becomes larger but does so at a lower rate than the rate of growth of all the inputs used in production. for instance, if a 100% rise in scale results in a lower than 100% rise in total product then the firm is experiencing decreasing returns to scale.


Related Discussions:- Increasing returns to scale and decreasing returns to scale

Properties of isoquants, 1. Isoquants are negatively sloped because if...

1. Isoquants are negatively sloped because if the quantity of factor 1 used in production is decreased then the quantity of the other factor must be increased to produce the s

Regression methods, This is a very common methods of forecasting demand. Un...

This is a very common methods of forecasting demand. Under this methods a relationship is established between quantity demanded( dependent variable) and independent variables such

1, price falls and demand is elstic

price falls and demand is elstic

Intermediate microeconomics, show that the necessary and sufficient conditi...

show that the necessary and sufficient conditions for consumer equilibrium under both cardinal and ordinal utility theories are identical .

Law of demand, The price of petrol fell during the past year. a. Explain...

The price of petrol fell during the past year. a. Explain why the law of demand applies to petrol just as it does to all other goods and services. b. Explain how the substitu

Price elasticity of demand and supply, Price Elasticity of Demand is explai...

Price Elasticity of Demand is explained below: Price elasticity of demand/require is the percentage change in the quantity demanded with respect to the percentage change in the

Determine the rule of divergence in general, Determine The Rule of Divergen...

Determine The Rule of Divergence in General Though even if attention is confined to non-communist-ruled economies there still has been huge divergence in relative output per w

Specific monopolist, Specific Monopolist: Suppose a monopolist f...

Specific Monopolist: Suppose a monopolist firm, I-Tech, pays $500,000 in short-run costs for its capital and unskilled labor. Its only short-run decision, th

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd