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Economics A Level (DONEEEEEEE)

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Question:

How can RTS be used in an LRAC Curve, and what relation does it play with Economics of Scale

Author: eric_galvao



Answer:

-In an LRAC Curve, when its Falling it can be said there’s an Increasing RTS. When its Flatlined - Constant RTS. When its Rising, Decreasing RTS -This links with Economics of Scale. When Increasing RTS occurs, it contributes to Economics of Scale. This is because More Output is made per Unit of Input, so LRAC falls. (Because more Revenue) When Decreasing RTS occurs, it feeds into a Diseconomies of Scale.


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