Reduction in cost per unit resulting from increased production, realized through...
A property of a production function such that changing all inputs by the same proportion changes output more than in proportion. Common forms include homogeneous of degree greater than one and production with constant marginal cost but positive fixed cost. Also called economies of scale, scale economies, and simply increasing returns. Contrasts with decreasing returns and constant returns.
A situation in which output increases faster than employment when all inputs are increased at the same rate.
A market is characterized by increasing returns to scale when the price of producing an additional unit of a product (the marginal cost of the product) goes down as the quantity of the product produced goes up. Electric power and other public utilities are examples of markets that exhibit increasing returns to scale. Most of the cost of providing electric power comes from setting up the infrastructure of power lines. Once that infrastructure is in place, pumping more and more power over those lines costs little. The presence of increasing returns to scale means that large companies can produce more efficiently than small companies. See also: first mover advantage, lock-in, natural monopoly
when all inputs are increased by a certain proportion, output increases by a greater proportion (also known as economies of scale)
Increasing returns to scale are technological conditions under which a given percentage increase in all the firm's inputs (the long-run) results in the firm's output increasing by a larger percentage. With Increasing returns to scale, the firm's long-run average cost decreases as its output increases.
