The difference between increasing, constant and decreasing returns to scale
Returns to scale describe what happens to output when a firm increases all its inputs by the same proportion. Output can rise by more, the same, or less than the increase in inputs.
Real World
IKEA experiences increasing returns to scale as it opens larger distribution hubs; Starbucks shows near-constant returns as each new outlet closely mirrors the last; and a small artisan brewery can hit decreasing returns when management complexity rises faster than output.
Exam Focus
Use a specific numerical example (e.g. 'inputs double, output triples = IRS') to demonstrate understanding — examiners reward precision.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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