Returns to Factor and Returns to Scale refer to the rise in the total product because of increasing just one factor while holding the other factors constant and change in the factor inputs simultaneously in the same proportion in the long run respectively.
What is Returns to Factor?
Returns to a factor refer to the rise in the total product that results from increasing just one factor while holding the other factors constant. The production of the firm displays the Law of Variable Proportions in the short term when one input is variable, and the other inputs are fixed. There are three phases of Returns to Factor; viz., Increasing Returns to a Factor, Decreasing Returns to a Factor, and Negative Returns to a Factor.
What is Returns to Scale?
Returns to scale refer to the change in output that results from a change in the factor inputs simultaneously in the same proportion in the long run. Simply put, when a firm changes the quantity of all inputs in the long run, it changes the scale of production for the goods. There are three stages of Returns to Scale; viz., Increasing Returns to Scale, Constant Return to Scale, and Diminishing Returns to Scale.
Difference between Returns to Factor and Returns to Scale
| Basis | Returns to Factor | Returns to Scale |
|---|---|---|
| Meaning | The rise in the total product that results from increasing just one factor while holding the other factors constant is known as Returns to Factor. | The change in output that results from a change in the factor inputs simultaneously in the same proportion in the long run is known as Returns to Scale. |
| Factor Proportion | In returns to factor, as the variable factor keeps on changing, the ratio of fixed and variable factors also changes. | In returns to scale, the factor proportion does not change. |
| Scale of Production | The scale of production in case of returns to factor does not change. Only the production level changes. | The scale of production in case of returns to scale changes. |
| Time Period | Returns to factor applies to the short-run production function. | Returns to scale is concerned with the long-run production function. |
| Reason for Operation | The output of the commodity changes with the change in the marginal productivity of the variable factor. | The output of the commodity changes with the change in the efficiency of all factors. |
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