Returns to Scale
Measuring relationship between scale (size) of a firm and output
1. Increasing returns to scale: output more than doubles when all the inputs are doubled
- Larger output associated with the lower cost (or autos)
- One firm is more efficient than many (or utilities)
- The isoquants get closer together
2. Constant returns to scale: output doubles when all the inputs are doubled.
• Isoquants become farther apart