Answer to Question #204519 in Microeconomics for Pritika choudhary

Question

How would you differentiate between Law of Returns to a Factor and Law of Returns to Scale? How would you show your understanding about the reasons of the application of these two laws? 

Answer 1

Two fundamental production laws are returns to a factor and return to scale, which can be differentiated by; only one aspect varies while the others are fixed(returns to element) while all or multiple factors vary (return to scale). Also, return to factor is usually a short-run phenomenon, whereas return to scale is usually a long-run phenomenon. A company seeking to maximize its profits at a cost-efficient level will employ both laws to make critical production decisions.