Question
What is meant by returns to scale?
Solution
Meaning of Law of Returns to Scale. Returns to scale explains the behaviour of output when quantities of all the inputs are changed in the same proportion. Alternatively, returns to scale refers to the increase in output when all the factor inputs are increased simultaneously in the same proportion. As a result output may increase in a greater proportion, in the same proportion or in a lesser proportion. Accordingly returns to scale may be increasing, constant or decreasing as explained below. It is a long run concept.
