Question

Task 2

What is the difference between diminishing marginal returns and diseconomies of scale?

use your own word and detailed explanation

Answer 1

Diminishing marginal returns states that increase in one factor of production, while all other inputs are held fixed, there will be a point beyond which additional output from increase in one additional unit of input gets smaller or, diminished.

Diseconomies of scale occurs when a firm gets too large in size. When it becomes too large and produces above it's optimum level i.e. on the minimum Point of long run average cost curve, then producing one additional output causes increase in average cost (as Firm now produces on the rising portion of LRAC curve). This additional cost of becoming too large is known as diseconomies of scale.