EECM 3714
Lecture 10: Unit 10
Returns to scale, homogeneity and partial elasticities
Renshaw, Ch. 17
04 May 2022
,OUTLINE
• Returns to scale
• Homogeneity
• Partial elasticities
, RETURNS TO SCALE (RTS)
• Consider the production function 𝑞 = 𝑓(𝐾, 𝐿)
• Returns to scale is the property of the production
function that tells us what happens to output if both
inputs are increased by the same proportion
• E.g.: RTS tells us what happens to q if both K and L are
doubled
• Three possibilities:
• Constant returns to scale: doubling L and K doubles q
• Increasing returns to scale: doubling L and K more than
doubles q
• Decreasing returns to scale: doubling L and K less than
doubles q
• Page 558-571
Lecture 10: Unit 10
Returns to scale, homogeneity and partial elasticities
Renshaw, Ch. 17
04 May 2022
,OUTLINE
• Returns to scale
• Homogeneity
• Partial elasticities
, RETURNS TO SCALE (RTS)
• Consider the production function 𝑞 = 𝑓(𝐾, 𝐿)
• Returns to scale is the property of the production
function that tells us what happens to output if both
inputs are increased by the same proportion
• E.g.: RTS tells us what happens to q if both K and L are
doubled
• Three possibilities:
• Constant returns to scale: doubling L and K doubles q
• Increasing returns to scale: doubling L and K more than
doubles q
• Decreasing returns to scale: doubling L and K less than
doubles q
• Page 558-571
