Question on: JAMB Economics - 2012
If all factors are variable in the long run,firms will experience
A
decreasing returns to scale
B
increasing returns to scale
C
diminishing returns
D
economies of scale
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Correct Option: B
In the long run, all factors of production are variable. Economies of scale refer to the cost advantages that enterprises obtain due to expansion.
- Economies of scale occur when the average cost of production decreases as the scale of production increases.
- Increasing returns to scale is when a proportional increase in all inputs leads to a more than proportional increase in output. This concept is closely related to economies of scale.
- Decreasing returns to scale is when a proportional increase in all inputs leads to a less than proportional increase in output.
- Diminishing returns is a concept that applies in the short run when at least one factor of production is fixed. It describes the situation where adding more of a variable input to a fixed input results in smaller increases in output.
Therefore
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