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how can economies of scale and diminishing returns occur at the same time?

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5mnioa0vaa profile image

The previous answer is basically correct but not very clear. Let me try to explain.

Various inputs (for example, labor, land, machinery, fertilizer) are required to produce an output (for example, wheat). Increasing one input (for example, labor) while keeping the other the inputs constant will increase the production of wheat. But the extra output for each worker added decreases as more workers are added. This is called diminishing returns.

Economies of scale can result when all inputs are increased. A doubling of all inputs more than doubles output. In this example, a larger farm with more of all inputs is more efficient than a smaller farm. In spite of this, increasing just one input on that farm will still show diminishing returns.