Answer to Question #319919 in Microeconomics for dee

Question

use a well labelled diagram to show how production isoquant can be used to explain ;increasing return, constant return, decreasing return

Answer 1

Increasing returns to scale

If the proportional increase in the output of a firm is greater than the proportional increase in inputs, the production is said to indicate increasing returns to scale.

Constant returns to scale.

The production of a firm is said to indicate constant returns to scale when the proportional change in input is equal to the proportional change in output. For example, when inputs are doubled, outputs should also be doubled, then this becomes a case of constant returns to scale.

Diminishing returns to scale

Diminishing returns to scale is the situation when the proportional change in output is less than the proportional change in the input. For example, when capital and labor is doubled but the output generated is less than doubled, the returns to scale would be termed as diminishing or decreasing returns to scale.

All these scenarios are illustrated below;