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Increasing Returns to Scale

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PPGPortal > Home > Concept Dictionary > I, J > Increasing Returns to Scale
 

Increasing Returns to Scale 

If increasing all of the inputs being used for production by a certain percentage increases the amount of total output by a greater percentage than the increase in inputs, we call this the case of increasing returns to scale.

(Dwayne Benjamin, Toronto PPG 1002H)

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For example, consider an oil pipeline. If we double the diameter of a pipe, we use twice as much materials, but the cross section of the pipe goes up by a factor of four. In this case, even though we have only used twice as many inputs, we have increased our output by more than 100%.

     

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