1). What is difference between a company\'s returns to labor and returns to scal
ID: 1224020 • Letter: 1
Question
1). What is difference between a company's returns to labor and returns to scale? (Please confirm that it is "A")
a. Returns to labor looks at the change in output when only the labor input is changing, whereas returns to scale looks at the change in output when all inputs are changing proportionally.
b. Returns to labor looks at the change in output when only the labor input is changing, whereas returns to scale looks at the change in output when only the capital input is changing.
c. Returns to labor looks at the change in output when only the labor input is fixed, whereas returns to scale looks at the change in output when all inputs are fixed.
d. Returns to labor looks at the change in output in the long run, whereas returns to scale looks at the change in output in the short run.
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2). Based on the graph below how would we describe the returns to scale for this firm?
A. increasing returns to labor
B. economies of scale
C. constant returns to scale
D. decreasing returns to labor
E. diseconomies of scale
PLEASE CONFIRM THAT THE ANSWER IS "B" Thanks!
Long Run Average Cost Curves Average Cost Average cost of medium plant size2 of larg ge cost $50 $40 Average cost of small plant size Average cost of large plant size3 Long run average cost 25 40 OutputExplanation / Answer
1) What is difference between a company's returns to labor and returns to scale ?
Answer:- a). Returns to labor looks at the change in output when only the labor input is changing, whereas returns to scale looks at the change in output when all inputs are changing proportionally.
Explanation:- In long run, all the factors of production (Land, Labor, Capital etc.) become variable ; no factor remains fixed. In this period, production of commodity can be increased by increasing all factor-inputs in same proportion. If all the inputs are changing proportionately, the scale of production also enhances and the corresponding behaviour of output is studied as returns to scale. On the other hand, Returns to labor looks at the change in output when only the labor input is changing. Retuns to Scale is wider concept than Returns to labor.
Conclusion:- a) Returns to labor looks at the change in output when only the labor input is changing, whereas returns to scale looks at the change in output when all inputs are changing proportionally.
2) Based on the graph below how would we describe the returns to scale for this firm.
Answer:- B) Economies of scale.
Explanation:- Economies of scale refer to the situation in which increasing the scale of production reduces the unit cost of production or raises output per unit of the factor inputs. In the graph given in the question, increasing the output from 25 to 40 units resulted in reduction of costs from $ 50 to $ 40. Therefore, returns to scale for this firm according to the graph is Economies of scale.
Conclusion:- B) Economies of scale.
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