Author Question: Define returns to scale.[br][br][b][color=#A83E49]Question 2[/color][/b][br][br]A perfectly ... (Read 47 times)

lbcchick · **on:** Jun 30, 2018

Define returns to scale.

Question 2

A perfectly competitive firm decides to shut down if:
a. the price falls below the average-total-cost.
b. average revenue falls below the average-variable-cost.
c. the price falls below the marginal cost.
d. the average revenue curve lies below the marginal cost curve.
e. the total revenue is less than total cost.

amanda_14 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Returns to scale summarize the response of a firm's output to equal percentage changes in all inputs. If all inputs are raised by equal percentages and output increases by a larger percentage, there are increasing returns to scale. Similarly, if all inputs are raised by equal percentages and output increases by a lesser percentage, there are decreasing returns to scale. If output changes by the same percentage as inputs, it implies constant returns to scale.

Answer to Question 2

b