Any further growth in the size of the firm yields decreasing returns to scale because output increases less than proportionately. If the factory increases its machinery and other equipment, along with labour and raw materials, this situation will not arise and returns may increase more in proportion, Equipment and machinery can only be increased in the long run.
In this context we may note that MP can be zero or negative, but AP can never be so.
Determinants of Returns to Scale: There are two major determinants of increasing returns to scale: 1 indivisibilities and 2 the principle of increased dimensions. It may be noted, at the outset, that short-run output changes reflect changes in the proportions in which factors are combined.
If there are two workers, the second worker can do the same work as the first, and the output will be 2x units. For instance, a profit- maximising firm might double the usage of both labour and capital.
As the producer moves towards the best combination, MP and AP tend to rise. In this case, however, we would no longer be considering the application of varying quantities of one factor together with a fixed factor land.