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When Does a Production Function Satisfy Constant Returns to Scale? - Economics

Short Note

When does a production function satisfy constant returns to scale?

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Constant returns to scale will hold when a proportional increase in all the factors of production leads to an equal proportional increase in the output. For example, if both labour and capital are increased by 10% and if the output also increases by 10%, then we say that the production function exhibits constant returns to scale.

Algebraically, constant returns to scale exists when

f(nL, nK) = n. f(L, K)

This implies that if both labour and capital are increased by ‘n’ times, then the production also increases by ‘n’ times.

Concept: Returns to Scale
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NCERT Class 12 Economics Introductory Microeconomics
Chapter 3 Production And Costs
Exercise | Q 9 | Page 50
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