Returns To Scale

constant returns to scale

When a given percentage increase in all inputs leads to an identical percentage increase in output increasing returns to scale

When the proportional increase in output is larger than an underlying proportional increase in input decreasing returns to scale

When output increases at a rate less than the proportionate increase in inputs

Closely related to the productivity of individual inputs is the question of how a proportionate increase in all inputs will affect total production. Constant returns to scale exist when a given percentage increase in all inputs leads to that same percentage increase in output. Increasing returns to scale are prevalent if the proportional increase in output is larger than the underlying proportional increase in inputs. if output increases at a rate less than the proportionate increase in inputs, decreasing returns to scale are present.

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