![]() ![]() ![]() We can conceive of different returns to scale diagramatically in the To decreasing returns to scale as output increases is referred to by Frisch (1965: p.120) as the ultra-passum law The movement from increasing returns to scale Probably make his job even more complicated. Quite unwieldy for the entrepreneur to manage properly, thus any increase in size will Producing at a very large scale, it will face decreasing returns because it is already Resources by division of labor and specialization of skills. Increasing returns because by increasing its size, it can make more efficient use of Was natural to assume that when a firm is producing at a very small scale, it often faces To scale at different levels of output (a proposition that can be traced back at least to Although any particular productionįunction can exhibit increasing, constant or diminishing returns throughout, it used to beĪ common proposition that a single production function would have different returns Sense was further discussed and clarified by Knut Wicksell The definition of the concept of returns in to scale in a technological As we are focusing on technicalĪspects of production, we shall postpone the latter for our discussion of the Marshallian (thus only applicable to situations of imperfect competition). Sometimes technical (and thus applicable in general), sometimes due to changing prices Marshall's presented an assortment of rationalesįor why firms may face changing returns to scale and the rationales he offered up were The concept of returns to scale to capture the idea that firms may alternatively face They remained anecdotal and were not carefully defined until perhaps Alfred Marshall (1890: Bk. ![]() The concept of returns to scale are as old as economics itself, although (doubling inputs doubles output) and decreasing returns to scale (doubling inputs To scale (doubling inputs more than doubles output), constant returns to scale When we double all inputs, does output double, more than double or less thanĭouble? These three basic outcomes can be identified respectively as increasing returns Same proportion, more than proportionally, or less than proportionally. The question of interest is whether the resulting output will increase by the The quantity of all factors employed by the same (proportional) amount, output will Returns to scale are technical properties of the production function, y = ¦ (x 1, x 2. ![]()
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