Question

What is the difference between the "law of diminishing returns" and "decreasing returns to scale"?

Answer 1

Law of diminishing returns says that when one variable factor of production is increased holding the other factors constant , the output initially increases at an increasing rate and then beyond a point the additional output resulting from the increase in variable input becomes less and less . Law of diminishing returns holds in short run when all factors of production are not variable.

Decreasing returns to scale occurs in long run when all factors of production are variable . Decreasing returns to scale occurs when increase in output following an increase in inputs is less than the increase in inputs .eg : if inputs doubled but output has increased only 1.5 times