Explain briefly returns to scale by giving numerical example.

Three tendencies of Returns to Scale. When all the inputs are increased in the same proportion, the following three types of situations in output are observed.

(i)    Increasing Returns to Scale (IRS). It occurs when output (TPP) increases by a greater proportion (say, by 120%) than the proportion of increase (say, by 100%) in all the inputs. For detail, see part (b) of this question.

(ii)    Constant Returns to Scale (CRS). It happens when output (TPP) increases by the same proportion (say, by 100%) as that of increase (say, by 100%) in inputs. For detail, see part (d).

(iii)    Diminishing Returns to Scale (DRS). It occurs when output (TPP) increases by a lesser proportion (say, by 80%) than the proportion of increase (say, by 100%) in inputs. For detail, see part (c).

(Mind : The above cited three tendencies are not three different laws of return to scale but three aspects of one and the same law.)