Question

Define returns to scale. Is it beneficial for the profit chasing firms only in long-run? Explain

Answer 1

Answer:

Explanation:

The concept of returns to scale arises in the context of a firm's production function. It explains behavior of the rate of increase in output (production) relative to the associated increase in the inputs (the factors of production) in the long run.

Answer 2

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For example, a manufacturer that expands its factory size, or a store that moves into a larger retail location, has changed has “increased in scale.” Thus, changes in scale are strictly a “long-run” phenomenon, because it requires changes to all fixed factors.