Match List-I with List-II
| List-I | List-II | ||
| (A) | Constant returns to scale | (I) | When a proportional increase in all inputs results in an increase in output by a larger proportion. |
| (B) | Decreasing Returns to Scale | (II) | The relationship between inputs used and output produced by the firm. |
| (C) | Increasing Returns to Scale | (III) | When a proportional increase in all inputs results in an increase in output by a smaller proportion. |
| (D) | Production function | (IV) | When a proportional increase in all inputs results in an increase in output by the same proportion. |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A) - (IV), (B) - (III), (C) - (I), (D) - (II)
A firm turns inputs such as labour and capital into output, and the rule linking the two is its production function. In the long run the firm can change all its inputs in the same proportion, and the returns to scale say what then happens to output: it may grow in the same proportion as the inputs, in a larger one or in a smaller one. Take a firm that makes 100 units with 10 workers and 5 machines, and then doubles both inputs to 20 workers and 10 machines.
(A) Constant returns to scale — this matches (IV) When a proportional increase in all inputs results in an increase in output by the same proportion. Output doubles too, to 200 units.
(B) Decreasing Returns to Scale — this matches (III) When a proportional increase in all inputs results in an increase in output by a smaller proportion. Output rises, but to less than 200 units, say 160.
(C) Increasing Returns to Scale — this matches (I) When a proportional increase in all inputs results in an increase in output by a larger proportion. Output more than doubles, say to 250 units.
(D) Production function — this matches (II) The relationship between inputs used and output produced by the firm. For given quantities of inputs, the production function gives the maximum output that can be produced with a given technology.
NCERT (2025-26): “3.6 Returns to Scale … One special case in the long run occurs when both factors are increased by the same proportion, or factors are scaled up. When a proportional increase in all inputs results in an increase in output by the same proportion, the production function is said to display Constant returns to scale (CRS). When a proportional increase in all inputs results in an increase in output by a larger proportion, the production function is said to display Increasing Returns to Scale (IRS) Decreasing Returns to Scale (DRS) holds when a proportional increase in all inputs results in an increase in output by a smaller proportion.… …The production function of a firm is a relationship between inputs used and output produced by the firm. For various quantities of inputs used, it gives the maximum quantity of output that can be produced.” |