<P> The laws of returns to scale are a set of three interrelated and sequential laws: Law of Increasing Returns to Scale, Law of Constant Returns to Scale, and Law of Diminishing returns to Scale . If output increases by that same proportional change as all inputs change then there are constant returns to scale (CRS). If output increases by less than that proportional change in inputs, there are decreasing returns to scale (DRS). If output increases by more than the proportional change in inputs, there are increasing returns to scale (IRS). A firm's production function could exhibit different types of returns to scale in different ranges of output . Typically, there could be increasing returns at relatively low output levels, decreasing returns at relatively high output levels, and constant returns at one output level between those ranges . </P> <P> In mainstream microeconomics, the returns to scale faced by a firm are purely technologically imposed and are not influenced by economic decisions or by market conditions (i.e., conclusions about returns to scale are derived from the specific mathematical structure of the production function in isolation). </P> <P> When all inputs increase by a factor of 2, new values for output will be: </P> <Ul> <Li> Twice the previous output if there are constant returns to scale (CRS) </Li> <Li> Less than twice the previous output if there are decreasing returns to scale (DRS) </Li> <Li> More than twice the previous output if there are increasing returns to scale (IRS) </Li> </Ul>

Constant returns to scale vs variable returns to scale