Economics, 3rd Edition

constant returns to scale

. This occurs when long-run average total cost does not vary with the level of 

output. If, however, the total cost of production at the new scale of production increased to 

€6,000 and 

output doubled to 4,000, the average cost of each pizza would now fall to 

€1.50 each. In this case the 

firm will experience increasing returns to scale. In this situation the proportionate increase in output is 

greater than the proportionate increase in total cost. In such a situation the firm is said to be experiencing