Returns to scale Do increasing returns to scale rule out dim

Returns to scale Do increasing returns to scale rule out diminishing marginal productivity?

Solution

Increasing return to scale, means decrease in cost with the increase in output level. It means that during the phase of increasing return to scale, marginal productivity increases. So, it can be said that increasing return to scale, prevents diminishing marginal productivity.

But, in other phase of production such as decreasing return to scale, output level decreases with increase in input, so diminishing marginal utility applies when there is decreasing return to scale.