Laws of returns to scale alludes to the long-run analysis of the laws of production. In the long run, output can be increased by varying all factors. So in this section we study the changes in output as a result of changes in all factors. Or we can say that we study the behaviour of output in response to changes in the scale. When all factors are increased in the same proportion an increase in scale occurs.
Scale alludes to quantity of all factors which that are used in optimal combinations for specified outputs. Term 'returns to scale' alludes to the degree by that output changes as a result of a given change in the quantity of all inputs used in production. We have three kinds of returns to scale: constant, increasing and decreasing. If output increases by same proportion as the increase in inputs we have constant returns to scale. If output increases more than proportionally with increase in inputs, we have increasing returns to scale. If output increases less than proportionally with the increase in inputs we have decreasing returns to scale. So returns to scale may be constant, decreasing or increasing depending upon whether output increases in the same, greater or lower rate in response to a proportionate increase in all inputs.