Class 12 Micro Economics - Chapter Production and Costs NCERT Solutions | When does a production function satisfy
When does a production function satisfy constant returns to scale?
Constant returns to scale will hold when a proportional increasem in all the factors of production leads to an equal proportional increase in the output. For example, if both labour and capital are increased by 10% and if the output also increases by 10%, then we say that the production function exhibits constant returns to scale. Algebraically, constant returns to scale exists when,
F (nL, nK) = n (L, K) This implies that if both labour and capital are increased by ‘n’ times, then the production also increases by ‘n’ times.
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