Phases of returns to scale

Three phases of returns to scale:

The modifications in output as an outcome of changes in scale can be studied in 3 phases. They are:

Increasing returns to scale:

When the increase in all factors leads to a greater than proportionate augment in output, it is termed as increasing returns to scale. For illustration, when all the inputs are raised by 5 percent, the output rises by more than 5 percent that is, by 10%. In this situation the marginal product will be increasing.

Constant returns to scale:

When we increase all the factors (that is, scale) in a specified proportion, the output will raise in similar proportion that is, a 5 percent increase in all the factors will outcome in an equivalent proportion of 5 percent raise in the output. Here the marginal product is steady.

Decreasing returns to scale:

When the increase in every factor leads to a less than proportionate increase in output, it is termed as decreasing returns to scale that is, when all the factors are raised by 5 percent, the output will rise by less than 5 percent that is, by 3 percent. In this stage marginal product will be declining.

Table: Returns to scale

1450_long run function1.jpg

347_long run function2.jpg

 Figure: Returns to Scale

The figure above elucidates the different phases of returns to scale. Whenever marginal product increases (i.e., AB), net product rises at an increasing rate. Therefore there is increasing returns to scale. Whenever Marginal Product stays constant (i.e., BC), Total Product raises at a constant rate and this stage is termed as constant returns to scale. Whenever Marginal Product reduces (i.e., CMP), Total Product rises at a declining rate and it is termed as decreasing returns to scale.


Latest technology based Economics Online Tutoring Assistance

Tutors, at the, take pledge to provide full satisfaction and assurance in Production help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Production, project ideas and tutorials. We provide email based Production help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Production. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Economics Homework help and assignment help services. They use their experience, as they have solved thousands of Economics assignments, which may help you to solve your complex issues of Production. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.

2015 ┬ęTutorsGlobe All rights reserved. TutorsGlobe Rated 4.8/5 based on 34139 reviews.