Question

Give an example of a production process that is possible to have decreasing marginal product in an input and yet increasing returns to scale. Show your work and explain

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Answer 1

Stage of increasing returns, this is the first stage where during the time of inflection, the total product of labor increases at increasing rate later on it speeds up decreasing. the marginal product of labor will have a hike initially and later on decreases but the average product of labor will rise throughout this stage.due to the invisibility of factors and specialized labor there will increase in returns. in this stage, rational producers won't work because the producer is always looking at the incentive to expand in this stage of labor, where there is labor rising in the average product which means the average cost decreases as output goes up in the graph. when their input which is added is less than the output we get is known as increasing returns to scale

"There is no direct relationship between the decrease in the marginal product in input and yet increasing returns to scale", from returns to scale we learn that when the input varies along with this output also varies by the same factor. when all other input factors are fixed, when there is the change in one input the marginal product will change accordingly.

M=N+P,

M is the quantity of output, N is the amount of capital, and P is the amount of labor used in production. this equation shows that an increase in one input there will be increased in output accordingly.