Question

Define the three types of Returns to Scale with at least one example of each type. What is the most common type to Return to Scale and why.

Answer 1

increasing return to scale when the output of the firm as more than the input of the firm increased then it is considered as increasing return to scale, for example, if a firm increase the input by 50% then the output will increase by more than 50% .

Decreasing return to scale is when the increase in the output is less than the increase in the input, for example if the input is increased by 50% then the output will increase by less than 50%.

Constant returnt to scale, here, the input and output both increase at the same rate,

Most common in economy is the decreasing return due to diminishing marginal rate of the goods.