MGEB02H3 Study Guide - Midterm Guide: University Of Toronto Scarborough, Production Function, Isoquant

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEB02H3
• Professor: All

Document Summary

Question-1 [28 points] answer the following short questions: [6 points] give a definition of economies & diseconomies of scale, contrast it with returns to scale, and then relate it to the shape of the long run average cost. A production process is characterized by economies of scale if the doubling of the output does not require doubling of the inputs. It is characterized by diseconomies of scale if doubling of output requires more than doubling of the inputs. It is more general than the definition of the returns to scale because returns to scale requires a proportional change in the inputs while economies of scale does not. The relationship between economies of scale and marginal cost is the following: Economies of scale (increasing returns to scale): decreasing lrac. Diseconomies of scale (decreasing returns to scale): increasing lrac. No economies or diseconomies of scale (constant returns to scale): constant lrac.