Returns to Scale - Explained
What is a Return to Scale?
Written by J. Mance Gordon
Updated at April 23rd, 2024
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What is a Return to Scale?
When viewing the long-run average cost curve, the average costs begin by going down as more units are produced. This is because of economies of scale.
Eventually, economies of scale have been exhausted, and the LRAC curve goes flat. At this point, all inputs to expand does not much change the average cost of production. This a constant return to scale.
Relate Topics
- Theory of the Firm
- Capital Formation
- Rent Seeking
- Structure Conduct Performance Model
- Integration
- Co-Insurance Effect
- Conglomerates
- Cost vs Profit Center
- Accelerator Theory
- Market Structure
- Fixed Cost vs Variable Cost
- Actual vs Implicit Costs
- Explicit Costs
- True Cost Economics
- Accounting Profit
- Economic Profit
- What are Factors of Production?
- Factor Income
- Production Function
- Fixed and Variable Inputs
- Short-Run and Long-Run Production
- Short Run
- Total Product
- Marginal Product
- Value of Marginal Product
- Law of Marginal Diminishing Product
- Production Function
- Production Possibilities Frontier
- Capital
- Labor Theory of Value
- How the Production Function Estimates Inputs
- Factor Payment
- Economic Rent
- Cost Function
- Incremental Cost
- Marginal Input Cost
- Fixed and Variable Costs
- Diminishing Marginal Productivity
- Costs Relate to Diminishing Marginal Productivity
- Law of Diminishing Marginal Returns
- Average Total Cost
- Average Variable Cost
- Marginal Cost
- Average Profit or Profit Margin
- Accounting Profit
- Economic Profit
- Normal Profit
- Short and Long-Run Production
- Cost Curves
- Long-Run Average Cost (LRAC)
- Production Technologies
- Economies of Scope
- Economies of Scale
- Diseconomies of Scale
- Minimum Efficient Scale
- Increasing, Constant, and Decreasing Returns to Scale
- Shape of the Average Long-Run and Short-Run Cost Curves
- Returns to Scale
- Diseconomies of Scale
- Long-Run Average Cost Curve Affect Industry Competitors
- Technology Shifts the Long-Run Average Cost Curve
- Law of Diminishing Marginal Returns