Increasing Returns to Scale

Another term for “economies of scale”. Refers to the increase in the productivity of labor and capital a firm experiences as it expands its output in the long run (the variable plant period). As a firm grows, it is able to acquire better capital, attract better management, invest more in its workers’ training, purchase raw materials in bulk, achieve lower per unit shipping costs, and enjoy other productivity enhancing cost-cutting benefits of getting larger.

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