increasing returns to scale

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In a productive process, average productivity increasing with output. This means that increasing all inputs in the same proportion results in a more than proportional increase in output. Formally, consider the function

f(x1,…, xn).

If the function satisfies the assumption of increasing returns to scale then

f(λx1,…,λxn) >λf(x1,…, xn)

for any λ > 1.

Subjects: Economics.

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