Question

It is possible to have diminishing marginal returns to a single factor of production and constant returns to scale at the same time. Discuss.

A.

The statement is true. As long as only one input has diminishing marginal​ returns, it is possible to have constant returns to scale.

B.

The statement is false. If an input exhibits diminishing marginal​ returns, then doubling that input will result in less than double the output.

C.

The statement is false. The terms​ 'marginal returns' and​ 'returns to​ scale' are interchangeable.​ Therefore, if the factors of production have diminishing marginal​ returns, then there are decreasing returns to scale.

D.

The statement is true. Diminishing marginal returns to a single factor applies to the short run when all other inputs are held fixed. On the other​ hand, returns to scales applies to the long run when all inputs can be increased.

Answer 1

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Now first let us understand that diminishing marginal returns and constant returns to scale are two very different concepts . Diminishing marginal returns to a single factor occurs when other factors are constant or fixed in units . So here other factors are constant and only the variable factor is increased which results in lower marginal product over time .

Now constant returns to scale means all factors are increased in same proportion and the output gets increased in that proportion only . While each factor individually exhibits diminishing marginal returns , output may more than double, less than double, or exactly double when all the factors are doubled ( which gives rise to 3 different types of scales ) . So in returns to scale no input is fixed , all increased in same proportion .

Diminishing marginal returns is a short run phenomena , returns to scale is a long run phenomena .

So yes both are quite possible together .

Answer : D. The statement is true. Diminishing marginal returns to a single factor applies to the short run when all other inputs are held fixed. On the other​ hand, returns to scales applies to the long run when all inputs can be increased.