A production function that is characterized by economies of scale will not be subject to diminishing returns.

Question

Quizplus · Accepted Answer

A production function that exhibits economies of scale will eventually face diminishing returns as the scale of production increases beyond a certain point. This is because the efficiency gains from economies of scale will eventually be offset by the increasing costs associated with managing larger and more complex operations. As a result, the shape of the production function will eventually become convex, indicating diminishing returns.

A Production Function That Is Characterized by Economies of Scale