Question

1)Describe returns to scale ,and how it deffers from marginal productivity despite that both address increase in output.

2)Given that output is going to increase ,explain how a firm would increase output in the short run differently than in the long. Why would long run cost be less than short run cost when producing the same level of output.Show graphically too

Answer 1

1) Returns to scale refer to the relationship between outputs and inputs when all inputs are simultaneously increased. Therefore, returns to scale shows how outputs change in the long-run when all inputs are variable.

On the other hand, marginal productivity refers to the change in total output because of an increase in one input while keeping all other inputs fixed.

The main difference between the two is the in returns to scale, the change in output is observed when all inputs are simultaneously changed. In marginal productivity, we change only one input while keeping other inputs fixed to observe the change of that single input on the total output.