Economies of specialisation & scale

Economies of scale (including those of specialisation, networks and over time) are pervasive in production and consumption. They are partly the result of the laws of physics (volumes increase faster than surface area as a body increases in size), but they also arise through sharing fixed resources. Economies of scale allow substantial reductions in costs and hence they are exploited if available and tend to dominate production. Constant returns to scale are by definition rare, but are chosen as an assumption in neoclassical equilibrium models to make them tractable.

Relevant papers:

McCombie and Roberts (2007)

References:

McCombie, J. S. and Roberts, M. (2007), Returns to scale and regional growth: the static‐dynamic Verdoorn Law paradox revisited*. Journal of Regional Science, 47: 179-208. doi:10.1111/j.1467-9787.2007.00505.x

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