CMA Foundation · Fundamentals of Business Economics and Management · Theory of Production
Which of the following best describes 'returns to scale' in the theory of production?
Returns to scale describes how output changes when all inputs are increased or decreased in the same proportion in the long run. It differs from the law of variable proportions, which varies only one input while the others are held fixed in the short run.
- AThe change in output when only one input is varied and all others are kept constant
- BThe change in output when all inputs are changed in the same proportion in the long runCorrect
- CThe change in total cost when output is changed in the short run
- DThe change in the price of output when demand changes
Explanation
Returns to scale is a long-run concept in which every input is changed in the same proportion and the resulting change in output is studied. Option A describes the law of variable proportions (returns to a factor), which is a short-run idea. Options C and D are not about the input-output relationship.
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