Roughly speaking, a firm has increasing returns to scale if doubling all inputs leads to output...

Roughly speaking, a firm has increasing returns to scale if doubling all inputs leads to output increasing by more than a factor of two. Decreasing returns to scale is when doubling all of a firm's inputs, while likely increasing output, increases output by less than a factor of two. Whether returns to scale are increasing or decreasing often depends on how much room for increased specialization a firm has. Do you have experience, as either an employee or a customer, with a firm that as it grew seemed to experience either increasing or decreasing returns to scale? Why do you suspect this was the case?

Expert Solution

Yes

I was an employee at McDonald's cafe outlet in Vegas.

My firm experienced a decreasing returns to scale when it tried to hire and employ more employees to cater to increasing demand.

Although the purpose of the management was to increase service level and increase sales from the outlet, but it ended up being a choas and the sales fell.

This is because when more employees were hired, it led to internal conflicts and issues among the employees along with limited outlet space which made them service counter look chaotic and messy. The employees lost focus and were either talking, chatting or fighting among themselves.

This led to fall in the service level and thus sales from the outlet.

Thus, leading to decreasing returns to scale.

Rahul Sunny answered 2 years ago

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