Question

In some industries, securing the adoption of an industry standard that is favourable to one’s own product is an enormous advantage. It can involve marketing efforts that grow more productive the larger the product’s market share. Microsoft’s Windows is an excellent example. In the above situation of long run production function with all inputs as variable, justify this statement using a diagram and your own examples to explain the returns to scale.

Answer 1

The long run is the time period where the production function is depends on only variable factors . No fixed factors exist in long run there is no fixed factors and all factor becomes variable. so if inputs are changed proportionately the scale of production also changes.. Thus, the change in output as factor inputs change in the same proportion is called returns to scale. It defined as long run concept.

The final point proposes to natural (unregulated) monopoly as an industry where the socially optimal number of Atoms is one, as opposed to the old definition of (regulated) natural monopoly based on the inability to improve on costs by subdividing production, a purely production-based criterion. This new definition clearly balances the market and production sides, and is more appropriate in the absence of regulation and contestability. All these applications emphasize the role of scale economies in engendering a trade-of between the market effect and the production efficiency effect. They convey the sense that our simple results form a pre-requisite for a thorough understanding of the issues at hand.