The long-run behavior of production when all factors can be changed and their proportion maintained is explained by the concept of returns to scale. When all factor inputs can be varied, keeping their proportion constant, it is called a change in the scale of operations. An increase in the scale of operations means that all the factor inputs are changed in the same proportion. The behavior of output consequent (i.e. keeping, the factor proportions unaltered) is known as returns to scale. The law of returns to scale starts that when ll factors of production are increased in the same proportion, the output may initially increase at an, increasing rate but will ultimately increase at a diminishing rate.
SUBMIT ASSIGNMENT NOW!