production does not change much as scale rises or falls. The following Clear It Up feature explains where

diminishing marginal returns fit into this analysis.

CLEAR IT UP

How do economies of scale compare to diminishing marginal returns?
The concept of economies of scale, where average costs decline as production expands, might seem to conflict with

the idea of diminishing marginal returns, where marginal costs rise as production expands. However, diminishing

marginal returns refers only to the short-run average cost curve, where one variable input (like labor) is increasing,

but other inputs (like capital) are fixed. Economies of scale refers to the long-run average cost curve where all inputs

are allowed to increase together. Thus, it is quite possible and common to have an industry that has both

diminishing marginal returns when only one input is allowed to change, and at the same time has economies of
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