Returns to Scale
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Decreasing RTS contribute to...
Diseconomies of scale as LRAC is rising
Increasing RTS contribute to...
Economies of scale as AC is falling
Decreasing returns to scale
When an increase in all factor inputs leads to a less than proportional increase in output
Increasing returns to scale
When an increase in all factor inputs leads to a more than proportional increase in output
Constant returns to scale
When an increase in all factor inputs leads to a proportional increase in output
Firms with high FC have a _____ MES
large MES
Define returns to scale
the effect on output of increasing all factor inputs by the same proportion
What is the Minimum Efficient Scale (MES) of production
the lowest level of output at which the minimum possible AC can be achieved
