Returns to scale measures how much the total output changes when you increase all production inputs by the same percentage in the long run.

Types of returns to scale:

• Increasing returns to scale: Output increases by more than the percentage increase in inputs. The long-run average cost (LRAC) decreases as production grows.
• Constant returns to scale: Output increases by the exact same percentage as the inputs. The LRAC remains stable.
• Decreasing returns to scale: Output increases by less than the percentage increase in inputs. The LRAC rises as production grows.

Difference from the law of diminishing returns:

• Returns to scale: Happens in the long run, where all production factors change.
• Diminishing returns: Happens in the short run, where at least one factor is fixed and only one factor changes.

How to measure:

• If doubling all inputs more than doubles output, you have increasing returns.
• If doubling all inputs exactly doubles output, you have constant returns.
• If doubling all inputs results in less than double the output, you have decreasing returns.