In economics, returns to scale describe what happens to long run returns as the scale of production increases, when all input levels including physical capital usage are variable. The concept of returns to scale arises in the context of a firm's production function.

What is meant by increasing returns to scale?

An increasing returns to scale occurs when the output increases by a larger proportion than the increase in inputs during the production process. For example, if input is increased by 3 times, but output increases by 3.75 times, then the firm or economy has experienced an increasing returns to scale.

What is an example of increasing returns to scale?

Increasing returns to scale occurs when a firm increases its inputs, and a more-than-proportionate increase in production results. For example, in year one a firm employs 200 workers, uses 50 machines, and produces 1,000 products.