5) long run costs and returns to scale

Question 1

when do we have the long run?

Answer 1

when all factors of production are variable

Question 2

what can we analyse about the LRAC graph when we have increasing returns to scale?

Answer 2

when we have increasing returns to scale

% change of output > % change of input

because we are getting more out than what we are putting in

costs are rising but output is rising faster

Question 3

what can we analyse about the LRAC graph when we have constant returns to scale?

Answer 3

when we have constant returns to scale

% change of output = % change of input

Question 3

what can we analyse about the LRAC graph when we have decreasing returns to scale?

Answer 3

when we have decreasing returns to scale

% change of output < % change of input

because we are getting less out than what we are putting in

costs are rising faster than output

Question 4

when do we have economies of scale?

Answer 4

increasing returns to scale

Question 5

when do we have diseconomies of scale?

Answer 5

decreasing returns to scale

Question 6

what is the MES?

Answer 6

the lowest level of output where we can still fully enjoy economies of scale

after it we have constant returns

after this quantity costs cant get any lower