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Distinguish between diminishing returns in the short run and Economies of scale in the long run. Given the existence of economies of scale, how can small firms survive?
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Economics Essay Distinguish between diminishing returns in the short run and Economies of scale in the long run. Given the existence of economies of scale, how can small firms survive? Production is the transformation of inputs into outputs. For firms to remain in business, they should avoid running into bankruptcy by efficient allocation of resources. The desired result is that as inputs are utilized, outputs will magnify by a greater percentage or the average cost per output will diminish according to "the law of diminishing returns" and "economies of scale" respectively. According to the universal definition of "the law of diminishing returns", "when one of the factors of production is held fixed in supply, successive additions of the other factors will lead to an increase in returns up to a point, but beyond this point returns will diminish, holding technology constant." As for "economies of scale", when a firm increase its...
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