Define returns to scale.
Understand the Problem
The question is asking for a definition of the economic concept known as returns to scale, which refers to how the output of a production process changes as the scale of input changes.
Answer
Returns to scale are the rate of change in output relative to input change.
Returns to scale refer to the rate at which production output changes as a result of a proportional change in all inputs.
Answer for screen readers
Returns to scale refer to the rate at which production output changes as a result of a proportional change in all inputs.
More Information
Returns to scale can be constant, increasing, or decreasing. In constant returns to scale, output increases proportionally with input. In increasing returns to scale, output increases more than the proportional change in input. In decreasing returns to scale, output increases less than the proportional input change.
Tips
A common mistake is confusing returns to scale with diminishing marginal returns, which relates to changes in output as one input changes while others remain constant.
Sources
- Returns to Scale in Economics | Definition, Types & Examples - study.com
- Returns to Scale - Wikipedia - en.wikipedia.org
- Returns to Scale - an overview | ScienceDirect Topics - sciencedirect.com
