Beyond homogeneous production functions

Konstantin Gluschenko

MPRA Paper from University Library of Munich, Germany

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.

Keywords: returns; to; scale; economies/diseconomies; of; scale; non-homogeneous; production; function; firm’s; expansion; path; market; structure (search for similar items in EconPapers)
JEL-codes: D24 D40 (search for similar items in EconPapers)
Date: 2025-11-05
New Economics Papers: this item is included in nep-eff
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:126706

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