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49 053 102 109 paper and allied products 044 065 109

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Unformatted text preview: ens to output when all inputs are increased by the same factor there are increasing returns to scale if output increases by a factor greater than ; there are constant returns to scale if output increases by a factor equal to ; there are decreasing returns to scale if output increases by a factor less than . On the other hand, the concept of economies of scale tells us what happens to average cost when the firm produces more output (and therefore uses more inputs): 37 ECO 204 Chapter 12: a Firm’s Cost Minimization Problem (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. { It can be shown that a firm with constant or decreasing returns to scale may in fact have economies of scale12. It can also be shown that if the inputs expansion path is linear then a firm with increasing returns to scale has economies of scale; a firm with constant returns to scale has constant economies of scale; and a firm with decreasing returns to scale has diseconomies of scale. As such, the fact that the...
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