Neoclassical growth theory is based on the assumption of marginal returns to a single factor and returns to scale exhibited by the aggregate production function.

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Neoclassical growth theory assumes that marginal returns to a single factor of production (usually labor) decrease as more of that factor is used, leading to diminishing marginal returns. At the same time, the aggregate production function exhibits constant returns to scale, meaning that if all inputs are increased proportionally, output also increases proportionally. This combination of decreasing marginal returns and constant returns to scale results in the assumption of a unique steady-state equilibrium in the long run.

Neoclassical Growth Theory Is Based on the Assumption of Marginal