Question

Explain the basic difference between the 'law of variable proportions', and 'returns to scale'.

Answer 1

Law of variable proportions is a short period concept when output can be increased only by increasing the application of the variable factor. Fixed factor (indicating scale of output) remains constant.

Returns to scale, on the other hand, is a long period concept when output can be increased by increasing the scale of output. Increasing returns, constant returns and diminishing returns tend to operate when the scale of output is expanded, even when all the factors are variable factors.