Question

Discuss the difference between increasing returns and economies of scale.

Answer 1

Increasing returns is not same as the economies of scale.

Increasing returns is the concept which tells about increase in the output when there is increase in the amount of resources used to produce the output. It tells about the relationship of input with output. For example if resources increase by x% then how much will the output increase is specified by increasing returns.

Economies of scale explains that the cost of production will be less if the production of output will take place at a larger scale. This tells about the effect of increase in output on the per unit cost.