A Level Economics AQA Practice Exam

In economic terms, what does 'return to scale' pertain to?

1. The efficiency of one variable input

2. Changes in production scale and corresponding output

3. The balance of fixed and variable costs

4. Profit maximization techniques

The correct answer is: Changes in production scale and corresponding output

Return to scale refers specifically to how the output of a production process changes as all inputs are varied, typically increased. When examining return to scale, economists analyze how changes in the scale of production affect the quantity of goods produced. For instance, if a company doubles its input (all resources and inputs used), the return to scale will determine whether the output also doubles, more than doubles, or less than doubles. This concept can reveal whether the production process benefits from increasing returns to scale (where output increases by a larger proportion than input), constant returns to scale (where output increases in direct proportion to input), or decreasing returns to scale (where output increases by a smaller proportion than input). The other options touch on different aspects of economics but do not accurately capture the essence of 'return to scale.' Efficiency of one variable input is focused on individual input performance rather than the aggregate effect. The balance of fixed and variable costs pertains more to cost structure rather than output changes related to scaling. Profit maximization techniques involve strategies businesses use to increase profits, which is a broader topic that doesn't directly connect to the definition of return to scale.