<p>They both describe different situations, and they are not necessarily causal.</p>
<ol>
<li><p>Economies of scale are properties of the cost function. When <span class="math-container">$\partial TC/\partial Q &lt;0$</span>, economies of scale exist.</p>
</li>
<li><p>Increasing returns to scale are properties of the production function. Increasing returns to scale exist when adding more input produces disproportionately more output, so they exist when <span class="math-container">$ F(aK, aL) &gt; aF(K, L)$</span>.</p>
</li>
</ol>
<p>1 does not necessarily cause 2, and other way around.</p>

CC BY-SA 4.0
2023-10-21T13:02:11.100Z
2023-10-21T13:02:11.100Z
csilvia
<p>Does increasing returns to scale cause economies of scale OR is it the other way around?</p>

<microeconomics><econometrics><mathematical-economics><international-trade>
direction of causality between Increasing returns to scale and economies of scale
user205152
# direction of causality between Increasing returns to scale and economies of scale

(Asked by: username_0 on 2023-10-21)

Does increasing returns to scale cause economies of scale OR is it the other way around?

**Tags:** microeconomics, econometrics, mathematical-economics, international-trade


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## 1 answers

### Answer by username_1 on 2023-10-21. Score: 2

They both describe different situations, and they are not necessarily causal.

1. Economies of scale are properties of the cost function. When $\partial TC/\partial Q <0$, economies of scale exist.
2. Increasing returns to scale are properties of the production function. Increasing returns to scale exist when adding more input produces disproportionately more output, so they exist when $ F(aK, aL) > aF(K, L)$.

1 does not necessarily cause 2, and other way around.


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