5 Major Differences between Returns to Scale and Returns to a factor Proportions

Law of Returns

1) Only one factor varies while all the rest are fixed.

2) The factor-proportion varies as more and more of the units of the variable factor are employed to increase output.

3) Returns to a factor or to variable proportions end up in negative returns.

Law of Return to Scale

  1. All or at least two factors vary.
  2. Factor proportion called scale does not vary. Factors are increased in same proportion to increase output.
  3. Returns to scale end up in decreasing returns

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By Hassham

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