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Beyond homogeneous production functions

Author

Listed:
  • Gluschenko, Konstantin

Abstract

Standard production functions, being homogeneous, have unchanging returns to scale. Therefore, it remains unclear to students where the U-shape average-cost curves come from. This article considers non-homogeneous production functions that have variable returns to scale and can produce such curves, providing a specific example. The article also discusses the link between economies/diseconomies of scale and market structures, showing that economies of scale are incompatible with perfect competition. They are peculiar to monopolies and oligopolies, whereas in a perfectly competitive market there are no economies of scale, diseconomies of scale being a quite normal phenomenon.

Suggested Citation

  • Gluschenko, Konstantin, 2025. "Beyond homogeneous production functions," MPRA Paper 126706, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:126706
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    References listed on IDEAS

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    1. Paul M. Comolli, 2000. "Pecuniary Effects, Second-Order Conditions, and the LRAC Curve," The Journal of Economic Education, Taylor & Francis Journals, vol. 31(2), pages 131-143, June.
    2. Gregory M. Gelles & Douglas W. Mitchell, 1996. "Returns to Scale and Economies of Scale: Further Observations," The Journal of Economic Education, Taylor & Francis Journals, vol. 27(3), pages 259-261, July.
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    More about this item

    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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