Diminishing Returns in the Short Run vs. Economices of Scale in the Long Run

Short-term income reduction and long-term production scale economy is a shift from input to production. In order for a company to maintain its business, it should avoid falling into bankruptcy through effective resource allocation. The desired result is that if the input is used the output will be amplified at a greater rate or the average cost of each output will decrease according to the "Decrease Law of Revenue" and "Scale Economy" respectively. According to the general definition of "the law of profit reduction", "If one of the factors of production is fixed to supply, a continuous increase in other factors will lead me.

Declining economies of scale is a phenomenon that is applied to the company's long-term production. In fact, this phenomenon also includes the theory of reducing marginal profit. In fact, if a company adopts (improving the production situation in the long run) the production situation, cost reduction will be further reduced (Lipsey, 2002). For example. Large purchase discounts may reach certain limits and may not offer discounts after that. Likewise, fixed costs may be allocated first at higher rates. This may decrease over time, as more units are less likely to contribute to fixed costs. A scale economy will show an increase in revenue relative to the scale and then will show a decline in revenue relative to the scale. It is also known as uneconomical in scale (Anderton, 1993).

While economies of scale are related to economies of scale, they are sometimes confused with this concept. The economy of scale means the average cost of a company, but the return of scale means the relationship between long-term input and production in the production function. When the input increases at a constant rate and the output increases at the same rate, a constant gain is obtained. When the input increase doubles the rate of the achieved output, the scale gain decreases. When the input volume is doubled, the scale of revenue will increase. The contradiction between the theoretical concept of scale and return and the actual concept of scale economy is due to a large fixed cost as a source of scale economy.