If the labor required per unit of output falls as output increases (such as is specified in the Krugman model), this can be thought of as a situation

Question

Quizplus · Accepted Answer

When the labor required per unit of output falls as output increases, it is a situation of increasing returns to scale. This means that as output increases, the total input required (labor) decreases at a greater rate, leading to a more than proportional increase in output. This is in contrast to constant returns to scale where the input required increases at the same rate as output and decreasing returns to scale where the input required increases at a greater rate than output. This situation is not exactly the same as Ricardo's analysis, which focused on comparative advantage in trade theory.

If the Labor Required Per Unit of Output Falls as Output