What do I need to take back now? Constant returns to scale or the Don Juan business 🙂

Thankyou. If no-one had made that argument by tomorrow I was going to make it myself 😛 As a result, I have my response all nice and prepared 🙂

Now, diminishing returns to a specific input is a common – even essential assumption in economics. However, we are not discussing individual inputs persee we are discussing aggregate production.

A single input not only impacts on the production of a good, it also changes the productivity of other inputs. Generally, the major inputs described my economics are complements – insofar as the increase in one input increases the marginal product of other inputs.

As a result, we can have a diminishing marginal product but constant or increasing returns to “scale” – which discusses what happens when we increase all inputs by the same amount.

It is commonly believed that countries at least have constant returns to scale (which would imply the same result as Frog Blog if we ignored any role for technology), however in many cases it is believed that countries face increasing returns to scale – because of the interaction between inputs.

As a result, the assumption of diminishing returns does not lead to a Frog Blog type result – we need to describe the impact of a change in “scale” as that is where our growth is essentially assumed to come from.

When I wrote the post I did not discuss scale – which implies that I implicitly assumed a constant returns to scale environment – which is in itself consistent with what frog blog was saying. However, that leaves us with technology – a factor I believe they have “again” underplayed.

Scared of what – why are comments on Friday afternoon so short?

Why. Being an economist is like being a lover – it is something we all have inside of us. We just need an economics Don Juan to bring it out 😉

Take that back!

“They’re not real people agnitio.”

Guys, everyone is an economist – they just don’t know it yet 😉