LR costs and returns to scale

Question 1

Long Run

Answer 1

when all factors of production are variable

Question 2

scaling up =

Answer 2

increasing fixed factors of production

Question 3

1. Increasing returns to scale

Answer 3

when %change in output > %change in input, so AC is decreasing
- Economies of scale occur here

Question 4

2) Constant returns to scale =

Answer 4

when % change in output = %change in input, so AC is constant

Question 5

3) Decreasing returns to scale =

Answer 5

when %change in output< %change in input, so AC is rising

Diseconomies of scale occur here

Question 6

at Q*

Answer 6

MES - Minimum efficient scale – lowest level of output required to exploit full economies of scale