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

Question

Quizplus · Accepted Answer

Economies of scale and diminishing returns are different concepts. Economies of scale refer to the cost advantages that a firm experiences as it increases production, while diminishing returns refer to the decrease in the marginal output of a production process as a single factor of production is incrementally increased, holding all other factors constant. A production function can exhibit both economies of scale and diminishing returns simultaneously.

A Production Function That Is Characterized by Economies of Scale