Distinguish between Return to scale and Law of Diminishing Marginal returns
Distinguish between Return to scale and Law of Diminishing Marginal returns
Return to Scale
The return to scale is different from the law of returns. The laws of return state that, as the quantity of one-factor variable inputs in a production process is increased, while the quantity of other inputs remains fixed, marginal physical product first increases than after reaching a maximum starts decreasing and finally become negative.
Whereas return to scale describes the relationship between output and the variable inputs when all the inputs or factors are increased in the same proportion, the output may be more than double or less than double. The law of returns to scale has three stages.
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Increasing returns to scale: If the inputs in a production process are increased by 100% and it leads to an increase in production by more than 100% then the production function is said to be one of having an increasing return to scale.
Decreasing return to scale:- If increasing the inputs by 100% leads to increase in production by less then 100% then the production function is said to be having a decreasing return to scale.
Constant returns to scale:- If the inputs of the production process are increased by 100% and output increase exactly by 100% then the production function of the firm is said to be having constant returns to scale.
S.No.
|
Scale of production
|
Total return (in tons)
|
Marginal return (in tons)
|
|
1
|
1 worker + 5 acres of land
|
10
|
10 stage of
15 increasing return
20
30
|
|
2
|
2 worker + 10 acres of land
|
25
|
|
|
3
|
3 worker + 15 acres of land
|
45
|
|
|
4
|
4 worker + 20 acres of land
|
75
|
|
|
5
|
5 worker + 25 acres of land
|
125
|
50 stage of constant
50 return
|
|
6
|
6 worker + 30 acres of land
|
175
|
|
|
7
|
7 worker + 35 acres of land
|
200
|
25 stage decreasing
15 return
5
|
|
8
|
8 worker + 40 acres of land
|
215
|
|
|
9
|
9 worker + 45 acres of land
|
220
|
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Naeem Javid Muhammad Hassani is working as Conservator of Forests in Balochistan Forest & Wildlife Department (BFWD). He is the CEO of Tech Urdu (techurdu.net) Forestrypedia (forestrypedia.com), All Pak Notifications (allpaknotifications.com), Essayspedia, etc & their YouTube Channels). He is an Environmentalist, Blogger, YouTuber, Developer & Vlogger.