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

Short Note

When does a production function satisfy decreasing returns to scale?

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Solution

Decreasing returns to scale (DRS) holds when a proportional increase in all the factors of production leads to an increase in the output by less than the proportion. For example, if both labour and capital are increased by ‘n’ times but the resultant increase in output is less than ‘n’ times, then we say that the production function exhibits DRS.

Algebraically, DRS exists when

f(nL, nK) < n. f(L, K)

Concept: Returns to Scale
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APPEARS IN

NCERT Class 12 Economics Introductory Microeconomics
Chapter 3 Production And Costs
Exercise | Q 11 | Page 51
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