constant returns to scale

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A property of a function of one or several variables such that a uniform relative change in all of its arguments results in an equal relative change in the value of the function; also referred to as linear homogeneity. For example, a Cobb–Douglas production function exhibits constant returns to scale when the elasticities of all inputs with respect to output sum up to one. Formally, consider the function f(x1,…, xn). If the function satisfies the assumption of constant returns to scale then

f(λx1,…,λxn) = λf(x1,…,xn)

for any λ ≥ 0.

Subjects: Economics.

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