Returns to Scale

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