Horti-Business Management

Laws of returns to scale

• The Laws of Returns to Scale is about the long run production analysis, wherein all inputs used in production are variable. The term returns to scale refers to the changes in output as all factors of production are increased by the same proportion.
• When all factors are increased by the same proportion;
1. The output may increase by the same proportion, then it is called Constant returns to scale.
2. If the output increases less than proportionately, then it is called Decreasing returns to scale.
3. If the output increases more than proportionately, then it is called Increasing returns to scale.