Principles of Business Decisions

Presented by
Anju.M.V
Roll No:-521
3rd B.Com Taxation
 Law of returns to scale

• The law that deals with long run production function is called
law of returns to scale.
• Law of returns to scale examines the input output relation when
all the inputs are changed in the same ratio.
• In law of returns to scale all the inputs are changed in the same
ratio so the proportion among the factor inputs remains the
same.
 Law of returns to scale has 3 phases depending on effect
on output due to the simultaneous change in all the input.
• Increasing returns to scale:-
Increasing returns to scale occurs when the
increase in output is more than the proportionate to increase
in input. Increasing returns to scale leads to increase in
marginal product.
• Constant returns to scale:-
Constant returns to scale occurs when the increase in output
is proportionate to increase in input.constant returns to scale appears
when the input combination reaches a certain point when there is no
further scope for division of labour.
• Diminishing return to scale:-
It occurs if the increase in output is less than proportionate to
increase in input. This is because the input combination are increased
to such extent that the scope for division of labour is reduced.
Serial no. Input Total product Marginal product Stages
combination ( in quintals) (in quintals)
No.of workers:
no.of acres of
land

1 1:2 10 10 Stage 1
2 2:4 25 15 Increasing
3 3:6 45 20 Returns
4 4:8 70 25 Stage 2
5 5 : 10 95 25 Constant
6 6 : 12 120 25 returns

7 7 :14 140 25 Stage 3

8 8 : 16 155 15 Decreasing
9 9 : 18 165 10 returns
Thank you