Talk:Returns to scale

Split this article into two
I was just editing an article and was about to insert a link to 'Economies of Scale' when I figured that I should just check out the economies of scale article. I was a bit surprised when I was redirected to Returns to Scale and even more surprised when I read "In economics, returns to scale and economies of scale are related terms that describe what happens as the scale of production increases. They are different terms and not to be used interchangeably." If they are different terms why does Economies of Scale redirect to this article??! This is a definite reason for splitting this article into two. On top of that, whilst economies of scale is a reasonably well known term, Returns to Scale is (as far as I can make out) only for the cognoscenti (who, in this case, are mainly economists). Another definite reason for splitting the article in two. Any objections to me doing this? Wikikob 19:07, 4 November 2006 (UTC)


 * I agree with the proposal to split "return to scale" from "economies of scale", for all the reasons mentioned above. Apdevries 12:44, 6 November 2006 (UTC)

ARTICLE NEEDS TO BE COMPLETELY REWRITTEN

The article on "economies of scale" says almost nothing about them other than they shouldn't be confused with "increasing returns to scale," has a poor example involving "fixed costs" and then redirects the reader to the article on "returns to scale." There, the unfortunate reader is provided with definitions that both say if a proportional increase in all factors of production leads to a more than proportional increase in output, then the production process exhibits increasing returns to scale...and exhibits economies of scale. So the distinction between economies and returns to scale that was so emphasized turns out to be no distinction at all! Moreover, the second paragraph of the economies of scale section contradicts the definition provided in the first paragraph. It talks of an "initial investment of capital" being diffused over an increasing number of units of output. So apparently the initial capital is not increased, despite the first paragraph specifying that "all input factors are increased by some amount." In the formal definitions section, only economies of scale are defined, no mention is made of returns to scale. The article is incoherent. Economies of scale are exceedingly important and economists, ever since Adam Smith pointed to the astonishing increase in production brought about by increasing the division of labor, have had many valuable things to say about the sources of economies, how extensive they are, what they mean for competition, for the ability of prices to provide correct signals for efficient investment etc. There is a valid distinction between economies of scale and increasing returns, but economists are not completely consistent in how they use them. The former concept is much more important than the latter. I would like to completely revise this article, but I am new to Wikis and need to learn formating etc. MichaelPLynch 04:33, 27 January 2007 (UTC)

Diseconomy/ideal firm size
This looks like a possible copyright violation, or possibly original research. PLease provide sources, or it will be removed. Rd232 17:56, 8 August 2005 (UTC)


 * Both sections are written in my own words, so not a copyright violation. This is not based on original research.  The facts mentioned (CAD system history at GM/EDS, contraction of GM/EDS, discontinuation of the Oldsmobile Brand, MicroSoft antitrust lawsuit, and relative sizes of MicroSoft, Google, and GM) are based on my own experience and/or news reports.  I suppose I could supply footnotes for each of these facts, but they mostly seem to fall into the category of "common knowledge" to me.  If you demand proof of the theory, that would be rather difficult for most theory in macroeconomics, as a sample of, say 1100 car companies (identical in every way except for scale), would be needed to provide a 90% confidence interval over a 3% margin of error.  Since there aren't anywhere near 1100 such car companies, there is no truly scientific way to prove the ideal firm size for a car company, and thus no source for such an article.  The Wikipedia policy acknowledges that theory is not always verifiable, and says the following on the topic:

How to deal with Wikipedia entries about theories

For theories: state the key concepts; state the known and popular ideas and identify general "consensus", making clear which is which, and bearing in mind that extreme-minority theories or views need not be included.


 * I believe that the existence of "Diseconomy of Scale" and "Ideal Firm Size" is accepted theory, based on consensus. If there are any of the individual bullets which you feel are "extreme-minority theories", please let me know.  Also, bear in mind that there was NO material in Wikipedia on these concepts previously.  Thus, I feel my contributions should be improved upon, where necessary, not deleted.  StuRat 21:38, 8 August 2005 (UTC)


 * Fine. Article needs cleanup though (eg "We will cover some of these forces here" is not wikipedia style), and maybe it's time to split returns and economies into separate articles, if cleanup can't achieve clarity. Rd232 23:05, 8 August 2005 (UTC)


 * Good suggestion. I moved the "diseconomies of scale" and "ideal firm size" sections into new articles and added appropriate links to each from this article.  I also cleaned up the style issue example you gave, please let me know if you see any other style issues. StuRat 00:33, 9 August 2005 (UTC)

Example about economies of scale
Sorry to say, but this is bullshit. In the example you're talking about MARGINAL COSTS and AVERAGE FIXED COSTS. Marginal costs always deal with the SHORT RUN. In the LONG RUN all costs are variable, there are no fixed costs. The term "scale" deals with modifying ALL inputs, not just one, and hence deals with the long run. NEVER EVER use the words "scale" and "marginal" or "fixed" costs in the same sentence. This is completely wrong, as I said, one deals with the short run, the other with the long run. Whoever wrote that passage, please look it up in any economics textbook if you don't believe me. Somebody please change the article, or can I just delete that incorrect passage?

I am not convinced on the example on economies of scale as well. I find it misleading, given its reference to customers... Economies of scale should be referred to inputs and outputs factors, while here it looks as a consequence of customers' number... Completely misleading...

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I agree, the following example is just wrong

''A common example is a factory. An investment in machinery is made, and one worker, or unit of production, begins to work on the machine and produces a certain number of goods. If another worker is added to the machine he or she is able to produce an additional amount of goods without adding significantly to the factory's cost of operation''

We have economies of scale if the production grows hyperlinearly when we multiply ALL relevant inputs, not just a worker!

Your definitions are incorrect
Surely it should be:

F(aL,aK) > aF(L,K) ---> Increasing F(aL,aK) < aF(L,K) ---> Decreasing

Constant ones are fine. —Preceding unsigned comment added by 131.111.1.66 (talk) 13:56, 18 April 2011 (UTC)

The 2 inequalities should be under the same condition that a ≥ 1.

Astoria522 (talk) 06:57, 26 March 2015 (UTC)

External Link addition - returns to scale and macro
I added a link to a video lecture discussing returns to scale for an economy's production function - so regarding an application to macroeconomics instead of micro. Hopefully that's okay. — Preceding unsigned comment added by 76.126.56.234 (talk) 18:39, 2 November 2012 (UTC)

Dr. Gibbs's comment on this article
Dr. Gibbs has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

"The paragraph "Assuming that the factor costs are constant ..." is about economies of scale, but that is not entirely clear on first reading, especially as it comes after examples of returns to scale. Suggest revising wording, adding paragraph header, or intro sentence such as "The relationship between RTS and EOS is as follows." The 2 concepts are often mixed up so it is helpful to make the distinctions & relationships as clear as possible."

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

Dr. Gibbs has published scholarly research which seems to be relevant to this Wikipedia article:


 * Reference : Gibbs, Michael, 2005. "Returns to Skills and Personnel Management: U.S. DoD Scientists and Engineers," IZA Discussion Papers 1539, Institute for the Study of Labor (IZA).

ExpertIdeasBot (talk) 13:05, 7 June 2016 (UTC)