Economies of scale are the forces causing a firm?s long-run average cost to decrease as its
output level and size of the plant are increased; usually thought to be (i) increasing possibilities of
division and specialization of labor and (ii) greater possibilities of using more efficient technology,
that is, using advanced technological development and/or larger machines.
Returns to scale are the benefits that accrue to a firm from changing the proportions in which factors of
production are combined. A rational firm will always seek to maximize profits by minimizing costs: the
least-cost factor combination Returns to scale are basically concerned with the physical input and output
relationships. If, for example, the input of factors of production were to increase by 100% and output by
150%, increasing returns to scale will be realized. Conversely, if inputs were to be increased by 100% but
output increases by less than 100% then a firm would be experiencing decreasing returns to scale.
Wilfykil answered the question on February 6, 2019 at 08:57
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