Answer to Question #215168 in Economics for Camillus

Question

Describe the three types of returns to scale as used in producer theory

Answer 1

There are three kinds of returns to scale: constant returns to scale (CRS), increasing returns to scale (IRS), and decreasing returns to scale (DRS).

A constant returns to scale is when an increase in input results in a proportional increase in output. Increasing returns to scale is when the output increases in a greater proportion than the increase in input. Decreasing returns to scale is when all production variables are increased by a certain percentage resulting in a less-than-proportional increase in output.