2.2 Developing long run production theory - returns to scale

Question 1

What are returns to scale?

Answer 1

The rate by which output changes if the scale of all the factors of production is changed

Question 2

What are diminishing marginal returns?

Answer 2

Occurs when one extra unit of factor of production is added and output begins to fall

Question 3

What are increasing returns to scale?

Answer 3

When all of the factors of production employed increases, output increases at a faster rate

Question 4

What are constant returns to scale?

Answer 4

When the scale of all the factors of production increases, output increases and the same rate

Question 5

What are diminishing returns to scale?

Answer 5

When the scale of all factors increases, output rises at a slower rate

Question 6

What are economies of scale?

Answer 6

Output rises, unit costs fall

Question 7

What are diseconomies of scale?

Answer 7

Output rises, unit costs increase

Question 8

What is minimum efficiency scale?

Answer 8

Internal economies of scale have been fully exploited -

Lowest level of output required to exploit full EoS

Question 9

When does optimum firm size occur?

Answer 9

When economies of scale have been gained but before diseconomies of scale set in