DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : P. Sankara Rao
Designation : Lecturer
Branch : Commercial & Computer Practice
Institute : Govt. Polytechnic, Srikakulam
Subject : Business Economics
Subject code : CCP 502
Topic : Laws of Production
Duration : 50 mts.
Sub Topic : Law of Returns to Scale
Teaching aids : PPT & Animation

CCP502.45 1
Objectives

On completion of this period you would be

able to:
 Understand the law of returns to scale with
the help of a table
 Know how the returns occur in various stages

CCP502.45 2
Recap

In the earlier class we have learnt:

 The meaning and definition of law of returns to
scale
 The distinction between law of variable
proportions and law of returns to scale
 Various assumptions of law of returns to scale

CCP502.45 3
Law of Returns To Scale

 The law of returns to scale describes the

relationship between outputs and the scale of
inputs in the long run when all inputs are
increased in the same proportion
 To meet a long run change in demand the firm
increases its scale of production by using more
space, more machines and laborers in the
factory

CCP502.45 4
 Returns to scale in physical units
Unit Scale of production Total Marginal
returns returns
1 1 worker + 2 acres of land 8 8
Increasing
2 2 workers + 4 acres of land 17 9
returns
3 3 workers + 6 acres of land 27 10
4 4 workers + 8 acres of land 38 11 Constant
returns
5 5 workers + 10 acres of land 49 11
6 6 workers + 12 acres of land 59 10
Diminishing
7 7 workers + 14 acres of land 68 9
returns
8 8 workers + 16 acres of land 76 8

CCP502.45 5
Table explanation:

 In the beginning with the scale of production of

(1 worker + 2 acres of land), total output is 8
 To increase output when the scale of production
is doubled i.e. (2 workers + 4 acres of land). Total
returns are more than doubled. They become 17
 If the scale is trebled (3 workers + 6 acres of
land) returns become more than three fold i.e. 27
 It shows increasing returns to scale
 It is called Law of Increasing Returns

CCP502.45 6
Table explanation Contd

 If the scale of production is increased further,

total returns will increase in such a way that
marginal returns become constant
 In this case 4th & 5th units of the scale of
production, marginal returns are 11 i.e. returns to
scale are constant
 It is called Law of Constant Returns

CCP502.45 7
Table explanation Contd

 The increase in the scale of production beyond

this will lead to diminishing returns
 In the case of the 6th, 7th and 8th units, the total
returns increase at a lower rate than before so
that marginal returns start diminishing
successively to 10,9,8
 It is called the Law of Diminishing returns

CCP502.45 8
Summary

In this session, we have learnt

 The law of returns to scale with a table
 The three laws of returns to scale

CCP502.45 9
 Quiz

1. How many stages are there in the law of returns to

scale?
a) Five
b) Three
c) Two

CCP502.45 10