Question:
What is the difference between law of diminishing returns and returns to scale?
Author: Hjalmer PedersenAnswer:
Law of diminishing returns says, holding either K or L fixed, that increasing the non fixed production variable with 1 will lead to a decreasing output. Returns to scale is a contribution of all input factors to firm’s output when all input factors are variable. RTS govern the relationship between output and all inputs. LODR is a short run concept as one production factor is held fixed. RTS is a long run concept as both capital and labor is variable.
0 / 5 (0 ratings)
1 answer(s) in total