Question

In: Economics

The concept of returns to scale has been used by business managers in order to increase...

The concept of returns to scale has been used by business managers in order to increase the production efficiency to assess the productivity of organizational inputs like labor, machinery and equipment, and even technological innovation.

a. Describe the concept of returns to scale (RTS). Is it a short-run (SR), or long-run (LR) phenomenon?

b. List and describe the three types of RTS. Give an example each type of RTS (Increasing Returns to scale-IRTS, Constant returns to scale-CRTS, and Decreasing Returns to scale-DRTS).

c. What difficulties might a growing firm encounter as it grows in the size of its operation.

d. What other factor(s) beyond the production process might impact the growth and profitability of an organization that managers have to consider to scale up their production process?

Expert Solution

A. RTS scale means what happens in the long run returns, if the scale of production increases along with all inputs .RTS arises inrelation with firm's production function.It is long run phenomenon

B. RTS are three types

Increasing RTS

If the change in level of output of a firm is greater than the level of inputs, then production is increasing returns to scale.

eg.If the quantity of inputs is doubled and if output increased more than double then it is IRTS

Decreasing RTS

If the change in level of output of a firm is lesser than the level of inputs then production is decreasing returns to scale.

eg. In a firm capital and labour is doubled but output generated lesser than double then it is DRTS

Constant RTS

If the change in level of output is equal to level of inputs then the production is constant returns to scale.

eg. In a firm if capital and labour is doubled and if output also doubled then it is CRTS

C. Selecting the right staffs

Retaining and managing the customers

Evaluvating the performance of the company

Technological issues

Tight competition

D. The mangers have to consider market expansion, product diversification and product development for the further growth and profitability.

Rahul Sunny answered 2 years ago

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