Question

what is law of returns to scale?

Answer 1

According to the Law of Returns to Scale, if all the factor inputs are increased in the same proportion, then consequently the output will increase; but this increase may be at increasing, constant or at decreasing rate.

Based on the increase in the output, there exists following three aspects of Law of Returns to Scale.

1. Increasing Return to Scale (IRS)
2. Constant Returns to Scale (CRS)
3. Decreasing Returns to Scale (DRS)