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CMA Foundation · Fundamentals of Business Economics and Management · Means of Production

Which statement correctly distinguishes the law of variable proportions from returns to scale?

Variable proportions studies the effect on output of changing one input while the others remain fixed, which is a short-run situation. Returns to scale studies the effect of changing all inputs in the same proportion, which is a long-run situation. The other statements reverse or blur these ideas.

  1. AVariable proportions applies in the long run with all inputs changed; returns to scale applies in the short run with one input changed
  2. BVariable proportions deals with changing one input while others stay fixed; returns to scale deals with changing all inputs in the same proportionCorrect
  3. CBoth deal with changing one input while holding the others fixed, and differ only in the cost involved
  4. DVariable proportions deals with changing all inputs in the same proportion; returns to scale deals with changing only one input

Explanation

The law of variable proportions is a short-run concept: at least one factor is fixed and the proportion of factors changes. Returns to scale is a long-run concept: all factors are increased in the same proportion. Options A and D reverse the two ideas, and C wrongly treats them as the same.

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