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Question: Explain how diminishing returns differ from diminishing returns to scale.

Answer: The law of diminishing returns means that the increased output per additional unit of variable input will ultimately fall. These diminishing returns will always set in if one or more of factors of production are fixed. This only applies in the short run, when only one factor of production is variable and can be increased. As the variable factor of production is increased, the marginal product of that factor will rise at first, but will at some point begin to fall. However diminishing returns to scale can only occur when no factors of production are fixed. If the quantities of all of the factors of production increase, then output will increase.