Question

does crs in technology necessarily mean that the marginal cost should be constant?

in the competitive market prices are given so considering py-w1x1-w2x2 i guess mc could be constant because if I double the inout amount the outcome will double hence doubled profit. But if i look at the production function with 1 input and isoprofit curve even though I double th input outcome maybe doubled but the profit stays the same so I am confused.

TC

Answer 1

The constant return to scales (CRS) means that if you double the input the output will be doubled. Thus, long run average cost curve is constant for CRS. It is not necessary marginal cost (MC) is constant.

And also if you double input the output is also doubled. The profit is constant. As formula of computing profit is -

Profit = P x Q - w x L - r x K

Where, P is price, Q is quantity, w is wage rate, L is labor, r is capital rent, and K is capital.

Thusm if double the input, the output will be double as well. Thus, total revenue is doubled and cost will also be doubled via doubling of quantity (output) and doubling of inputs respectively. Therefore, the profit remained unchanged.