Explain why most production processes should experience increasing returns to scale over some initial range of...

Explain why most production processes should experience increasing returns to scale over some initial range of output

Expert Solution

Suppose a production process start with fixed amount of input except labour. If initially number of labour employed is underproducing it means output can be increased by increasing the number of labour employed in short run. As the number of labour employed keep increasing till the maximum capacity of production with increase in 1 unit of labour there will be more than 1 unit inrease in the output.

Barry's Barbershop was experiencing what it thought was overwhelming customer purchases. In one week the shop served 250 clients. To capitalize on this market, Barry hired 2 additional barbers, which gave him a total of 10 barbers. In this case the barbers were the input of resource, increased by 25%. As a result, the barbershop experienced average weekly sales of 320 for the next five weeks, an increase in output of 28%, increasing returns to scale.

Therefore generally in the beginning of the production process there is always the case of underproduction and with the increase in the input(labour) output can be increased at increasing rate.

Rahul Sunny answered 2 years ago

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