
Figure 6.12 Returns to Scale
(a) A production function has constant returns to scale if changing the amount of capital and labor by some multiple changes the output by exactly the same multiple. When the input combination (
L,
K) doubles from (1, 1) to (2, 2), output doubles from
Q = 1 to
Q = 2.(b) A production function has increasing returns to scale if changing the amount of capital and labor by some multiple changes the output by more than that multiple. When the input combination (
L,
K) doubles from (1, 1) to (2, 2), output more than doubles from
Q = 1 to
Q = 2.5.(c) A production function has decreasing returns to scale if changing the amount of capital and labor by some multiple changes the output by less than that multiple. When the input combination (
L,
K) doubles from (1, 1) to (2, 2), output less than doubles from
Q = 1 to
Q = 1.8.