Answer to Question #56985 in Microeconomics for idris

Question

Under what conditions do the following production functions exhibit decreasing, constant or increasing returns to scale? a.

Answer 1

Increasing returns to scale are observed in case, when the increase in inputs of production (labor or capital) is lower then the increase in total output.
Constant returns to scale are observed in case, when the increase in inputs of production (labor or capital) is the same as the increase in total output.
Decreasing returns to scale are observed in case, when the increase in inputs of production (labor or capital) is higher then the increase in total output.