{"id":3683,"date":"2021-08-03T10:14:01","date_gmt":"2021-08-03T04:44:01","guid":{"rendered":"https:\/\/www.goseeko.com\/blog\/?p=3683"},"modified":"2021-10-30T07:39:53","modified_gmt":"2021-10-30T07:39:53","slug":"what-is-law-of-return-of-scale","status":"publish","type":"post","link":"https:\/\/www.goseeko.com\/blog\/what-is-law-of-return-of-scale\/","title":{"rendered":"What is Law of Return of Scale?"},"content":{"rendered":"\n<p>In the long run, no factors are fixed. Law of return of scale refers to proportionate change in productivity from proportionate change in all the inputs.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Definition:<\/strong><\/h4>\n\n\n\n<p>\u201cThe term law of return to scale refers to the changes in output as all factors change by the same proportion.\u201d Koutsoyiannis<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Types of return of scale<\/h4>\n\n\n\n<ol class=\"wp-block-list\"><li><strong>Increasing return of scale<\/strong><\/li><\/ol>\n\n\n\n<p>When proportionate increase in factors of production leads to higher proportionate increase in production refers to increasing return of scale.<\/p>\n\n\n\n<p>In the below figure, x axis represents the increase in labour and capital while the Y axis represents increase in output. When labour and capital increases from Q to Q1, output also increases from P to P1 which is higher than the change in factors of production ie labour and capital.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/lh4.googleusercontent.com\/yNrhshNDKrum7bK5gJjSRXm1MlMKAc9tJFnMXiwqYhH1_s4rs2ACpzCuCCc_6UkKPfKXaV8US5bXGcSLM7YM2l4s7Jd6cyPGpbNz_TaEaoqH9ddBsFbsVvxmVBTWtVzvXA5QGNsO\" alt=\"\"\/><\/figure>\n\n\n\n<p>2. <strong>Diminishing return of scale<\/strong><\/p>\n\n\n\n<p>Diminishing return refers to percentage increase in factors of proportion leads to&nbsp; smaller proportion increase in the output. <\/p>\n\n\n\n<p>In the below diagram, x axis refers to an increase in labour and capital while the Y axis refers to an increase in output. Percentage increase in labour and capital from Q to Q1 results in less percentage change in output from P to P1.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/lh6.googleusercontent.com\/_7evinRc_nHkdV_Zpqu6YYP7qamfjwKnxqQR-0Yni2GsF69amSpP4l0S6eLNEyIW2ATi7_bv15FQpIFnaSQlCxvlS5_v2R181wCyNRtJh8AriUWB3MJr5LUiOisLpId-is8uNzb2\" alt=\"\"\/><\/figure>\n\n\n\n<p>3. &nbsp; &nbsp; <strong>Constant return of scale<\/strong><\/p>\n\n\n\n<p>Constant return of scale refers to output increases in the same proportion in which factors of production (labour and capital) increases. Internal and external economies is equal to internal and external diseconomies.<\/p>\n\n\n\n<p>In the below figure, x axis refers to an increase in labour and capital while the Y axis refers to an increase in output. Increase in labour and capital from Q to Q1 is equal to the increases in output from P To P1.<\/p>\n\n\n\n<p><img loading=\"lazy\" decoding=\"async\" width=\"288\" height=\"209\" src=\"https:\/\/lh5.googleusercontent.com\/906BaJ_SrsSYLc7DPhsKJc4HMrktwX2cPuu7S_0IE0iamHkY7-fY6C0WFVuJ_fHeenwrU1aHVpIIHRSIeDP4ilh9hBl3RL5t7ulFx20R-ygV0MdJxSt5nrRsCdZj_AopQVdvaUKo\"><\/p>\n\n\n\n<p><strong>Interested in learning about similar topics? Here are a few hand picked blogs for you &#8211;<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><a href=\"https:\/\/www.goseeko.com\/blog\/what-is-monopolistic-competition\">What is Monopolistic Competition?<\/a><\/li><li><a href=\"https:\/\/www.goseeko.com\/blog\/what-is-consumer-surplus\">What is Consumer Surplus?<\/a><\/li><\/ul>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Return of scale refers to proportionate change in productivity from proportionate change in all the inputs.<\/p>\n","protected":false},"author":28,"featured_media":3156,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[27],"tags":[],"class_list":["post-3683","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-commerce"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.3.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is Law of Return of Scale? 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