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Economics
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Producer Theory
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Returns to Scale (RTS)
Returns to Scale (RTS)
Measures how output changes when all inputs are scaled by a factor
λ
\lambda
λ
. If
f
(
λ
L
,
λ
K
)
=
λ
k
f
(
L
,
K
)
f(\lambda L, \lambda K) = \lambda^k f(L, K)
f
(
λ
L
,
λ
K
)
=
λ
k
f
(
L
,
K
)
, then
k
k
k
is the degree of returns to scale.