Answer to Question #299440 in Microeconomics for Alvin Townsend

Question

What is returns to scale

Answer 1

When all elements change in the same proportion, the term returns to scale refers to the changes in output. Returns to scale is a long-run concept that refers to the behavior of total output as all inputs are altered.

There are three types of returns to scale namely,

1. Constant Returns to Scale
2.  Increasing Returns to scale.
3.  Diminishing Returns to Scale

When all factors of production are raised, output increases at a faster rate, which is known as increasing returns to scale or diminishing cost.

When all the factors of production are increased in a given proportion, output increases in a lesser proportion. This is known as diminishing returns or increasing costs.

Constant returns to scale, often known as constant cost, describes a production situation in which output increases in the same proportion as production factors increase.