|
Answer» Two differences between returns to scale and returns to a variable factor are as follows: | Returns to Scale | Returns to Variable Factor | | 1. Returns to scale indicate the change in the level of output when all factors of production are changed in the same proportion simultaneously. | 1. Returns to a variable factor indicate the change in the level of output when the amount of one variable factor used is changed without altering the level of other factors of production. | | 2. Returns to scale occur over the long run. | 2. Returns to a variable factor can be experienced over the short run. | | 3. In returns to scale, the ratio of variable factors to fixed factors does not change. | 3. In returns to a variable factor, the ratio of variable factors to fixed factors changes as the amount of a variable factor used is altered and the amount of fixed factors used remains constant. | | 4. The three stages of returns to scale are increasing returns to scale, constant returns to scale and diminishing returns to scale. | 4. The three stages of returns to a variable factor are increasing returns to a variable factor, diminishing returns to a variable factor and negative returns to a variable factor. |
|
