Long -Run Production Function [With All Inputs Variable] /Returns to Scale
Long-Run Production Function[With All Inputs Variable] /Returns to Scale Returns to Scale measures the increase in output when all the inputs are increased in the same proportions. The concept of returns to scale is a long-run phenomenon. It explains the behavior of output in response to a proportional and simultaneous change in inputs. When a firm expands its scale by increasing all the inputs proportionately, then, there are three technical possibilities, and, accordingly, there are three kinds of returns to scale: 1. The total output may increase more than proportionately, i.e, increasing returns to scale. 2. The total output may increase proportionately, i.e, constant returns to scale. 3. The total output may increase less than proportionately, i.e, diminishing returns to scale. Increasing returns to scale : It is said to operate when the firm increases the quantity of all the factors proportionately. It leads to a more than proportionate increase in output. Suppose i...