Thus the constant returns to scale means that if all factor-inputs are varied at a certain percentage rate, output will change by the same rate.
Or, when the increase in output is proportional to the increase in the quantities of all factor-input; it is termed as constant returns to scale.
The constant returns to scale sometimes referred to by economists in managerial language, a production curve showing constant returns to scale is often called” Linear and homogeneous”. The Cobb-Douglas production function evolved by American economists Paul Douglas and C. W. Cobb is a linear and homogeneous function. Following Figure illustrates content returns to scale.
OR = RP = PG
Or OR1 = R1P1 = P1G1
OR2 = R2P2 = P2G2
| Scale of Production Total Output
(Machine + Labor) (Units)
|1Machine + 2 Labor 100
2Machine + 4 Labor 200