Which of the following refers to a short run phenomenon?Group of answer choiceseconomies of scaleconstant returns to scalediseconomies of scalediminishing returns
Question
Which of the following refers to a short run phenomenon?Group of answer choiceseconomies of scaleconstant returns to scalediseconomies of scalediminishing returns
Solution
Diminishing returns refer to a short run phenomenon. This concept is used in economics to describe a situation where, after a certain point, each additional input used in production leads to a less than proportionate increase in output. This typically happens when one factor of production is fixed (like machinery or land), and the variable factor (like labor) is increased. In the short run, at least one factor of production is fixed, so diminishing returns are more likely to be observed.
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