Cause for the operation of diminishing returns to scale 

As a firm expands its output, after a certain point, it encounters growing diseconomies. These diseconomies, ultimately, more than cancel out the economies of large scale production and lower down the long run average production. The economies of production are swamped by diseconomies of production. The main diseconomies are Managerial Diseconomies. These diseconomies occur primarily […]

Diminishing Returns to Scale

When the increase in output is less than proportionate to the given increase in the quantities of all factor-inputs, it is termed diminishing returns to scale. For instance, if the increase in factor-inputs is 20 percent and the resultant increase in output is less than 20 percent (say 15 percent) or a doubling of inputs […]

Constant returns to Scale

Thus the constant returns to scale means that if all factor-inputs are varied at a certain percentage rate, output will change by the same rate. Or, when the increase in output is proportional to the increase in the quantities of all factor-input; it is termed as constant returns to scale. The constant returns to scale […]

Increasing Return to Scale

Increasing Returns to scale refers to a situation where the total output increases in a greater proportion than the increase in units of factor inputs. When the increase in output is more than proportionate to the given increase in the quantities of all factor-inputs, it is termed as increasing returns to scale. For instance, if […]