Tag Archives: returns to scale

A very simple reason that there may be decreasing returns to scale is transaction costs increasing for a variety of reasons, some of which may not be well explained. Scaling up micro to the macro level risks running into the fallacy of composition since systems operate differently at different scales — as J. M Keynes observed with the paradox of thrift.Information Transfer Economics The replication argument Jason Smith

Technically, “constant returns to scale” describes a production process where you get exactly twice as much stuff out if you put twice as much stuff in. Economists often argue that at least constant returns to scale should be achievable since, worst case scenario, you could just build a second identical factory next to the first one. As such, I want economic instructors to start using this as their example of constant returns to scale.