If production displays increasing returns to scale, then it cannot display diminishing returns for all of its inputs.

Question

Quizplus · Accepted Answer

Increasing returns to scale refer to a situation where output increases by a larger proportion than the increase in inputs over the long run, while diminishing returns (also known as the law of diminishing marginal returns) applies to the short run when at least one input is fixed, leading to a decrease in the marginal output of a factor as more of it is added. These concepts operate under different conditions and assumptions, meaning a production process can exhibit increasing returns to scale in the long run and still display diminishing returns to one or more inputs in the short run.

If Production Displays Increasing Returns to Scale, Then It Cannot