1. MC is less than AC, then MC will fall Law of variable proportion Returns to scale 2. Explain what may happen when all inputs

Question

Which of the following represent the long run production function?

1. MC is less than AC, then MC will fall 

• Law of variable proportion 
• Returns to scale 

2.  Explain what may happen when all inputs vary simultaneously?

Answer 1

Returns to scale. 

When all inputs are varied simultaneously the output may change in three ways. 

1. Constant returns to scale: It is when a proportional increase in inputs result in an increase in output by the same proportion.

2. Increasing returns to scale: It is when a proportional increase in all inputs result in an increase in output by more than proportion. 

3. Decreasing returns to scale: It is when a proportional increase in all inputs result in an increase in output by less than proportion