4.3 Law of Diminishing Returns and Returns to Scale

What are total returns?

The overall output produced by all inputs

What are returns to scale, and how do they differ?

Returns to scale describe how output changes when all inputs are increased proportionally. Increasing returns to scale occurs when output increases more than inputs. Constant returns to scale occurs when output increases at the same rate as inputs, Decreasing returns to scale occur when inputs are increasing at a higher rate than outputs

What is the difference between the short run and long run in production?

In the short run, at least one factor of production is fixed, limiting the firm's ability to change its output level. In the long run, all factors are variable, allowing firms to adjust the input to change output

What are marginal returns?

The additional output from one more unit of input

What are average returns?

Average returns are the output per unit of input

What is the law of diminishing returns?

In the short run, when variable factors of production are added to a stock of fixed factors of production, total/marginal returns will initially rise and then fall