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Explain one cause each for increasing and diminishing returns to scale |
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Answer» One cause for increasing returns to scale is greater degree of specialisation of labour and machinery. As the scale of production increases the efficiency of labour increases due to division of Labour and specialisation of labour. Similarly, when the scale of production increases it becomes possible to use specialised machines and the services of specialised and efficient management. This occurs in the rise in productivity of inputs leading to increasing returns to scale. One cause for decreasing returns to scale is a rise in the scale of production beyond a point may create the problem of efficient management leading to decrease in managerial efficiency. A large scale of production causes the problem of lack of proper coordination, inverse bureaucracy, red-tapism, the long chain of communication and command between the higher management and on the production line. As a result of all this, the total efficiency of management diminishes. |
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