2.2 returns to scale

returns to scale is

the rate by which output changes if the scale of all the factors of production change

plant is

an establishment, such as a factory, owned and operated by a firm

increasing returns to scale

is when the scale of all the factors of production employed increases, output increases at a faster rate

constant returns to scale is when

the scale of all the factors of production employed increases, output increases at the same rate

decreasing returns to scale is when

the scale of all the factors of production increases, output increases at a slower rate

economies of scale is

as output inreases, LRAC falls

diseconomies of scale is

as output increases, LRAC increase

long run average cost is

the cost per unit of output incurred when all factors of production or inputs can be varied

the link between returns to scale and EOS

increasing returns to scale shows EOS, decreasing shows DEOS

optimum firm size is

the size of firm capable of producing at the lowest average cost and thus being productively efficient

minimum efficient scale is

the lowest output at which the firm is able to produce at the minimum achievable LRAC

the relationship between LRAC and SRATC is

upon the LRAC curve is multiple SRATC curves, representing different firm sizes

internal economies of scale

decrease in long run average cost as as a result of changes in the size or scale of a firm or plant

external economies of scale is

a fall in long run average costs of production resulting from growth of the market or industry of which the firm is a part of

axis for LRAC diagrams are

output on x, cost on y