This ppt covers return to scale. All types with graphs.

1. A PRESENTATION ON

2. SUBMITTED TO:-
 LOKESH PARIHAR 15EC48
 MAHENDRA BISHNOI 15EC50
 MAHESH CHOUDHARY 15EC51
 MANISH SAINI 15EC52
Dr. SAROJ LAKHAWAT
SUBMITTED BY:-
BRANCH:- ELECTRONICS & COMMUNICATION
GROUP :- EC2

4. Production Function is the relation between a firms physical
production(output) and the material factors of production(input).
Q=𝒇 𝑳, 𝑪, 𝑵
Where,
Q is quantity of output
L is labour
C is capital
N is land
In simple form
Q=𝒇(𝑳, 𝑪)

5. The production function is a technical or
engineering relation between input and output.
As long as the natural laws of technology remain
unchanged, the production function remains
unchanged.

6. TYPES OF PRODUCTION FUNCTION
SHORT RUN PRODUCTION LONG RUN PRODUCTION
One variable factor All factors are variable
Works in tandem with Laws of variable
Proportions
Works in tandem with Laws of return to
scale
3 Stages-
• Increasing returns
• Negative returns
• Diminishing returns
• Increasing returns to scale
• Constant returns to scale
• Diminishing returns to scale

7. PRODUCTION FUNCTION
Short Run Production Function Long Run Production Function
Return to a Factor
Law of Return to Scale
All factors are Variable
Laws of Variable Proportion
One Variable Factor
Return to Scale

8. FEATURE OF PRODUCTION FUNCTION
Substitutability of factors
Complementarity of factors
Specificity of factors

9. SUBSTITUTABILITY OF FACTOR
The factors of production or inputs are
substitutes of one another which make it
possible to vary the total output by
changing the quantity of one or a few
inputs, while the quantities of all other
inputs are held constant.

10. COMPLEMENTARITY OF FACTORS
The factors of production are also
complementary to one another, i.e. the
two or more inputs are to be used
together as nothing will be produced if
the quantity of either of the inputs used in
the production process is zero.

11. SPECIFICITY OF FACTORS
It reveals that the inputs are specific
to the production of a particular
product. Machines and equipment's
specialized works and raw materials
are a few examples of the specificity
of factors of production.

12. RETURN TO SCALE
 It is type of Long Run Production Function
 The term return to scale refers to the changes in output as all factors change by
the same proportion.
-Koutsoyiannis
 Returns to scale relates to the behavior of total output as all inputs are varied and
is a long run concept
-Leibhfsky
 Explanation:-
In the long run, output can be increased by increasing all factors in the same
proportion. Generally, laws of returns to scale refer to an increase in output due to
increase in all factors in the same proportion. Such an increase is called return to
scale.

13. RETURN TO SCALE
 Production Function
P=𝒇(𝑳, 𝑪)
 If both factors of production labour and capital are Increased
in same proportion i.e., x, production function will be
rewritten as
P1=𝒇(𝒙𝑳, 𝒙𝑪)

14. RETURN TO SCALE
 If 𝑷 𝟏 increases in the same proportion as the increase in
factors of production i.e.
𝑷 𝟏
𝑷
=x, it will be constant return to
scale
 If 𝑷 𝟏 incteases less then the proportionate increase in the
factors of production i.e.
𝑷 𝟏
𝑷
<x, it will be diminishing return to
scale.
 If 𝑷 𝟏 increases more than proportionate increase in the
factors of production i.e.,
𝑷 𝟏
𝑷
<x, it will be increasing return to
scale.

15. RETURN TO SCALE
S.No. Scale Total Product Marginal Product Phases
1.
2.
3.
4.
1 machine + 1 labour
2 machine + 2 labour
3 machine + 3 labour
4 machine + 4 labour
4
10
18
28
4
6
8
10
I
Increasing
Returns
5.
6.
5 machine + 5 labour
6 machine + 6 labour
38
48
10
10
II Constant
Return
7.
8.
7 machine + 7 labour
8 machine + 8 labour
56
62
8
6
III Decreasing
Returns

16. EXAMPLE OF RETURN TO SCALE
Barry’s barbershop was experiencing what it thought was
overwhelming customer purchases. In one week the shop served 250
clients. To capitalize on this market, Barry hired 2 additional barbers,
which gave him a total of 10 barbers. In this case the barbers were
the input of resource, increased by 25%. As a result, the barbershop
experienced average weekly sales of 320 for the next five weeks, an
increase in output of 28%, increasing returns to scale. If instead the
barbershop had made 225 sales after the increase in input, it would
have experienced decreasing returns to scale.

18. INCREASING RETURN TO SCALE
 If all inputs are doubled, output will also increase at the faster
rate than double.
Reasons
→ Division of labour
→ Specialisation
→ External economies of scale

19. CAUSES OF INCREASING RETURNS TO SCALE
Technical and managerial indivisibilities
Higher degree of specialization
Dimensional relations

20. CONSTANT RETURN TO SCALE
If all inputs are doubled, output will also doubled.
Reason
Economies of Scale is balanced
by diseconomies of Scasle

21. CAUSES OF CONSTANT RETURNS TO SCALE
Indivisibility of fixed factors.
When the factors of production are perfectly
divisible, the production function is homogenous of
degree 1 showing constant returns to scale.

22. DIMINISHING RETURN TO SCALE
If all inputs are doubled, output will be less than
doubled.
Reasons
 Internal diseconomies
 External diseconomies

23. CAUSES OF INCREASING RETURNS TO SCALE
Size of the firms expands, managerial efficiency
decreases.
Limited resources.

24. DISECONOMIES OF SCALE OF PRODUCTION
 INTERNAL DISECONOMIES
 Inefficient Management
 Technical Difficulties
 Production Diseconomies
 Marketing Diseconomies
 Fnancial Diseconomies
 EXTERNAL DISECONOMIES
 Diseconomies of Pollution
 Diseconomies of Strain on Infrastructure
 Diseconomies of High Factor Prices

25. Factors Laws of Return Return to Scale
Nature of Inputs Some Inputs are Fixed All Inputs are Variable
Time Element Short Run Production Function Long Run Production Function
Homogeneity Non Homogeneous Production
Function
Homogeneous Production Function
Law of Increasing Return Non Linear, Non Homogeneous
Production Function
Non Linear, Homogeneous
Function
Law of Constant Return Linear, Non Homogeneous
Function
Linear, Homogeneous Production
Function
Law of Diminishing Return Non Linear, Non Homogeneous
Production Function
Non Linear, Homogeneous
Function

26. RESOURCES
Exonomicsdiscussion.net
Images.google.com
Slideshare.net
Wikipedia.com