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Topic Videos

Returns to Scale in Long Run Production

Level:
A-Level
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 6 Nov 2023

In this revision video we look at the concept of long run returns to scale for businesses using examples from different industries.

Returns to scale refers to how a firm's output changes as it increases or decreases its inputs (labor, capital, etc.). There are three types of returns to scale:

  • Constant returns to scale: Output increases in proportion to input increases. For example, if a factory doubles its inputs (labor, capital, etc.), its output will also double.
  • Increasing returns to scale: Output increases more than proportionally to input increases. For example, if a factory doubles its inputs, its output may more than double.
  • Decreasing returns to scale: Output increases less than proportionally to input increases. For example, if a factory doubles its inputs, its output may increase by less than double.

In general, returns to scale can be a key factor in determining a firm's productivity and profitability.

Returns to Scale in Long Run Production

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