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Unit 7: Laws of Production

there are 2L units of labour and 2K units of capital, the output is exactly doubled i.e., equals 2X Notes
(point b). Similarly, trebling input achieves treble the output and so on.
Figure 7.3: CRS Production Function

If all the factors of production are increased in a particular proportion and the output increases
by more than that proportion then the production function is said to exhibits IRS. For example,
in many industrial processes if all inputs are doubled, factories can be run in more efficient and
effective ways, there by actually more than doubling output. This is shown in Figure 7.4. To
produce X units of output, L units of Labour and K units of output are needed. If labour is
doubled to 2L units and capital to 2K units, an output greater than 2X is produced (point c lies on
a higher isoquant than point b).

If the factors of production are increased in a particular proportion and the output increases by
less than that proportion than the production function is said to exhibit DRS. For example, if
capital and labour are increased by 10% and output rises by less than 10% the production
function is said to exhibit decreasing returns to scale.
Figure 7.4: IRS Production Function

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