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What is the difference between diminishing returns and decreasing returns to scale? What kind of returns to scale are possible/observed in healthcare organization? Why? What is the relationship between returns to scale and cost curves? Can you assess the shape of the long-run average cost curve for a hospital organization? You do not need to estimate the cost function, merely, on the basis of your knowledge of healthcare, what do you think the curve looks like and why?
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Macroeconomics theory on returns to scale states that if all factors of production in a given economy are doubled, then that economies output is also doubled. However, in cases when only single factor of production increases or the increase in the factors are not proportional to each other, then what would happen to output? Blanchard (2006) said that it is clear that output will also clear, but what isn’t clear is by how much (pp. 216-217). This is level of increase in output is explained by the decreasing returns to scale which …
