Explain how a firm can have constant returns to scale in production an

Explain how a firm can have constant returns to scale in production and economies of scale in cost.

What will be an ideal response?

ANSWER

A firm can have constant returns to scale in production at every output level. If the firm doubled all inputs the output would double. However, the firm may also more than double one input and double its output. Therefore in this way, as output doubles, the total cost might be less than doubling, resulting in a decreasing average cost, which is known as economies of scale.