Question

Explain increasing returns of scale and decerasing retums of sacle
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Answer 1

Answer:

For example, if input is increased by 3 times, but output increases by 3.75 times, then the firm or economy has experienced an increasing returns to scale. A decreasing returns to scale occurs when the proportion of output is less than the desired increased input during the production process...

Answer 2

In Production Economics,increasing returns to scale occurs when the output produced by a firm or company expands at a higher proportion than the increase in inputs/factors or production.

Explanation:

In production,increasing returns to scale can be attributed to a highly productive input or factor of production which causes output to increase at a higher proportion than the increase in the input itself.For example,a firm or company can hire a highly advanced technological input that can remarkably accelerate the production process thereby generating very high level of productivity.Hence,the output expands rapidly perhaps more than the rate or proportion at which that particular input is employed by the firm.

On the other hand,decreasing returns scale can occurs due to the diminishing marginal product of inputs/factors of production.For example,if the firm or company continues to hire more workers/laborers in the company without much necessary infrastructure and equipment for them to work with or assist them,it will consequently affect the productivity level and the output level as well.This will slowdown the production level and lead to less proportionate increase in production or output relative to increase in labor input causing decreasing returns to scale.