<p><strong>Economies of scale</strong> are normally understood to refer to a situation in which, as output is increased, the cost <em>per unit</em> of producing that output falls (see <a href="https://www.investopedia.com/terms/e/economiesofscale.asp" rel="nofollow noreferrer">here</a> and <a href="https://stats.oecd.org/glossary/detail.asp?ID=3203" rel="nofollow noreferrer">here</a>).</p>
<p><strong>Increasing returns to scale</strong> are normally understood to refer to a situation in which, as all inputs are increased k-fold, output increases more than k-fold (see <a href="https://xplaind.com/196977/returns-to-scale" rel="nofollow noreferrer">here</a> and <a href="https://stats.oecd.org/glossary/detail.asp?ID=2350" rel="nofollow noreferrer">here</a>).  This is equivalent to saying that a k-fold increase in output can be achieved by increasing all inputs less than k-fold.  The difference from economies of scale is that returns to scale are about the relation between inputs and output and nothing is implied about costs.</p>
<p>If a firm producing a good X is a price-taker in the markets for all the inputs it uses to produce X, and if those markets do not offer any form of discount for bulk purchases, then a k-fold increase in input quantities will imply a k-fold increase in cost, and vice versa.  In those circumstances, the firm will benefit from economies of scale if and only if it enjoys increasing returns to scale.</p>

CC BY-SA 4.0
2022-06-25T10:32:21.157Z
2022-06-25T10:32:21.157Z
Adam Bailey
<p>Can anyone tell me the difference between economies of scale and increasing returns to scale. It seems to me that observationally they would be equivalent.</p>

<production-function><firm>
What's the difference between economies of scale and increasing returns to scale?
cel
# What's the difference between economies of scale and increasing returns to scale?

(Asked by: username_0 on 2022-06-23)

Can anyone tell me the difference between economies of scale and increasing returns to scale. It seems to me that observationally they would be equivalent.

**Tags:** production-function, firm


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## 1 answers

### Answer by username_1 on 2022-06-25. Score: 2

**Economies of scale** are normally understood to refer to a situation in which, as output is increased, the cost *per unit* of producing that output falls (see [here](https://www.investopedia.com/terms/e/economiesofscale.asp) and [here](https://stats.oecd.org/glossary/detail.asp?ID=3203)).

**Increasing returns to scale** are normally understood to refer to a situation in which, as all inputs are increased k-fold, output increases more than k-fold (see [here](https://xplaind.com/196977/returns-to-scale) and [here](https://stats.oecd.org/glossary/detail.asp?ID=2350)). This is equivalent to saying that a k-fold increase in output can be achieved by increasing all inputs less than k-fold. The difference from economies of scale is that returns to scale are about the relation between inputs and output and nothing is implied about costs.

If a firm producing a good X is a price-taker in the markets for all the inputs it uses to produce X, and if those markets do not offer any form of discount for bulk purchases, then a k-fold increase in input quantities will imply a k-fold increase in cost, and vice versa. In those circumstances, the firm will benefit from economies of scale if and only if it enjoys increasing returns to scale.


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