Returns to Scale 1
In our pictures of long run average cost, we see that the cost per unit changes as the scale of operation or output size changes. Here is some terminology to describe the changes:
- increasing returns to scale = decreasing cost
- average cost decreases as output increases in the long run
- constant returns to scale = constant costs
- average cost is unchanged as output varies in the long run
- decreasing returns to scale = increasing costs
- average cost increases as output increases in the long run
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