Final answer:
Return to scale refers to the change in output as all inputs in the production process increase proportionately. There are three types of returns to scale: increasing returns to scale, constant returns to scale, and decreasing returns to scale.
Step-by-step explanation:
Return to scale refers to the change in output as all inputs in the production process increase proportionately. There are three types of returns to scale: increasing returns to scale, constant returns to scale, and decreasing returns to scale.
Increasing returns to scale occurs when the output increases more than proportionately to the increase in inputs. For example, if a factory doubles its inputs and the output more than doubles, it is experiencing increasing returns to scale.
Constant returns to scale occurs when the output increases proportionately to the increase in inputs. For example, if a factory doubles its inputs and the output also doubles, it is experiencing constant returns to scale.
Decreasing returns to scale occurs when the output increases less than proportionately to the increase in inputs. For example, if a factory doubles its inputs and the output increases by less than double, it is experiencing decreasing returns to scale.