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