Returning to scale and LRAC (4.1.4)

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what is return to scale?

it describes how output changes in response to a proportionate increase in the amount of all inputs.

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what is increasing returns of scale?

It means for an additional unit of input there is a more proportiante effect on output

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what is decreasing returns of scale?

It means that there is a less proportiante effect on output for a change in input

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what is constant returns of scale?

It menas that every extra unit of input added leads to a proportiante increase in output

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what does LRAC show?

The LRAC (Long Run Average Cost) shows how average costs change with output when all factors of production are variable.

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