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Distinguish Between the Law of Diminishing Returns and Returns to Scale
The law of diminishing returns only applies in the Short Run, when only one factor of production is variable and can be increased. The other factors of production are fixed. Thus as the variable factor of production is increased the marginal product of that factor will rise at first, but will at some point begin to fall.
Returns to scale can only occur when no factors of production are fixed. If the quantities of all of the factors of production are increased, then output will also increase. …
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