Returns to scale Flashcards

1
Q

returns to scale

A

a long run phenomenon where all FoP are variable

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2
Q

increasing returns to scale

A

if the increase in the scale of all FoPs causes a more than proportionate increase in output

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3
Q

decreasing returns to scale

A

if an increase in the scale of all FoPs causes a less than proportionate increase in output

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4
Q

constant returns to scale

A

if an increase in the scale of all FoPs causes the same proportionate increase in output

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5
Q

fixed costs

A

cost that does not vary as the level of output changes in the short run. fixed costs have to be paid no matter the sales achieved eg. rent

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6
Q

variable costs

A

costs that relate directly to the production or sale of a product eg. raw materials packaging

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