What do you mean by ""Return to Scale""?
Answers
Answer:
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Explanation:
What Is Returns to Scale?
The terms 'economies of scale' and 'returns to scale' are related, but they mean very different things in economics. While economies of scale refers to the cost savings that are realized from an increase in the volume of production, returns to scale is the variation or change in productivity that is the outcome from a proportionate increase of all the input.
Example
Barry's Barbershop was experiencing what it thought was overwhelming customer purchases. In one week the shop served 250 clients. To capitalize on this market, Barry hired 2 additional barbers, which gave him a total of 10 barbers. In this case the barbers were the input of resource, increased by 25%. As a result, the barbershop experienced average weekly sales of 320 for the next five weeks, an increase in output of 28%, increasing returns to scale. If instead the barbershop had made 225 sales after the increase in input, it would have experienced decreasing returns to scale.
Answer:
Explanation:
Definition: Returns to scale refers to the rate by which output changes if all inputs are changed by the same factor. Constant returns to scale: a k-fold change in all inputs leads to a k-fold change in output