Explore BrainMass

Theory of diminishing returns

Indicate whether each of the following statements is true or false and give the reason. (a) A firm should stop expanding output after reaching diminishing returns and (b) if large and small firms operate in the same industry, we must have constant returns to scale.

Solution Preview

a) False,

a firm should stop expanding output when marginal revenue = marginal cost.

b) Not always true.

Consider an economy of ...

Solution Summary

Theory of diminishing returns