Question

Differentiate between returns to scale and laws of returns.

Answer 1

Basis	Laws of returns	Returns to scale
Time period	The law of returns applies in the short run, where some inputs are fixed and others are variable.	Returns to scale apply in the long run, where all inputs are variable.
Nature of inputs	It deals with changing only one input (usually labor), keeping other inputs (like capital) fixed.	It deals with changing all inputs simultaneously in the same proportion.
Production function type	It is a non-homogeneous production function because not all inputs vary.	It is a homogeneous production function, as all inputs change in the same proportion.
Linearity	The production function is usually non-linear and non-homogeneous.	The production function is usually nonlinear but homogeneous.
Output response	Output changes as a result of changing one input, while others remain constant.	Output changes as a result of changing all inputs together in the same ratio.
Examples of application	Applies to a single unit of production (e.g., increasing labor in a fixed-size factory).	Applies to scaling up entire production (e.g., building a larger factory with more machines/labor).