Question

Returns to scale means ________________.

• A. the behaviour of production or return when all the production factors are increased or decreased simultaneously in the same ration
• B. the behaviour of production where one or two factors of production are fixed while the others are variable
• C. the marginal returns goes on increasing as more labour is invested in industry.
• D. the behaviour of production, when changes are made in factor proportions, keeping on or some factors fixed

Answer 1

Answer: (A)

the behaviour of production or return when all the production factors are increased or decreased simultaneously in the same ration

In the long run all factors are varied, the proportion of inputs while kept same is scaled up or down in order to produce at the minimum efficiency scale (long run minimum average cost) . Thus as the entire scale of production is changing, this phenomenon is know as returns to scale.