What is the concept of diminishing returns to scale?
1 Answer
May 21, 2015
Diminishing returns to scale happen when you double the use of inputs (K and L) but the output (q) grows less than its double.
For example, a Cobb-Douglas production function:
Since
In a graph, the isoquants are more distant from each other. Try plotting this graph with q=2, q=4 and q=6 and you'll see this effect.