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What is returns to scale?

Returns to scale refers to how the degree of change in input factors changes the output proportionally during production. Revising production factors, or inputs, affects output.

What are the different types of returns to scale?

There are three possible types of returns to scale: If output increases by the same proportional change as all inputs change then there are constant returns to scale (CRS). For example, when inputs (labor and capital) increase by 100%, output increases by 100%.

What does the law of returns to scale explain?

The law of returns to scale explains the proportional change in output with respect to proportional change in inputs. In other words, the law of returns to scale states when there are a proportionate change in the amounts of inputs, the behavior of output also changes. The degree of change in output varies with change in the amount of inputs.

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