The term "constant returns to scale" describes a situation where expanding all inputs does not change the average cost of production. a larger-scale firm can produce at a lower cost than a smaller-scale firm. expanding all inputs changes the average cost of production. the quantity of output rises and the average cost of production falls.

Question

Cesar

Business

28 December, 12:24

The term "constant returns to scale" describes a situation where expanding all inputs does not change the average cost of production. a larger-scale firm can produce at a lower cost than a smaller-scale firm. expanding all inputs changes the average cost of production. the quantity of output rises and the average cost of production falls.

+5

Answers (1)

Know the Answer?

Sullivan · Answer 1

Constant returns to scale refer to the situation where an increase in input causes an equal proportionate increase in output level.

Explanation:

The term constant returns to scale means that a proportionate increase in inputs causes an equally proportionate increase in the output level. In such a situation the average cost of production will not change due to the increase in inputs. This is because the average cost of production is the ratio of total costs and quantity of output and in constant returns increase in input leads to an increase in costs but the output level also rises by the same proportion.