6.18 : תשואות לגודל II

Decreasing returns to scale occurs when a firm's output grows proportionally less than the inputs in the long run. This means that if all inputs are doubled, the production is less than doubled.

Here, the addition of inputs lowers productivity.

For example, a television manufacturing firm may establish multiple factories and offices in various locations.

However, it becomes difficult to monitor the activities of employees working in different offices and factory operations at multiple locations. As a result, communication becomes impersonal and less effective. This reduces the productivity of inputs.

Managerial talent and corporate culture are inputs that are difficult to replicate. This is another major reason for decreasing returns to scale.

As the firm expands, it may experience a higher number of conflicts between managers and workers, which can sometimes reduce productivity.

On the other hand, constant returns to scale occur when the output changes in the same proportion as all the inputs. This means that if inputs are doubled, the production also doubles. Understanding these concepts helps explain why some industries have many smaller firms, while others can sustain larger enterprises.