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May 16, 2025 

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TECHNOLOGY, AGGREGATE SUPPLY DETERMINANT: One of several specific aggregate supply determinants assumed constant when the short-run and long-run aggregate supply curves are constructed, and that shifts both aggregate supply curves when it changes. An increase in technology causes an increase (rightward shift) of both aggregate supply curves. A decrease in technology causes a decrease (leftward shift) of both aggregate supply curves. Other notable aggregate supply determinants include wages, energy prices, and the capital stock. Technology comes under the resource quality aggregate supply determinant.

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CONSTANT RETURNS TO SCALE:

A given proportional change in all resources in the long run results in the same proportional change in production. Constant returns to scale exists if a firm increases ALL resources--labor, capital, and other inputs--by 10 percent, and output also increases by 10 percent. This is one of three returns to scale. The other two are increasing returns to scale and decreasing returns to scale.
Constant returns to scale results if long run production changes are greater than proportional changes in all inputs used by a firm.

Suppose, for example, that The Wacky Willy Company employs 1,000 workers in a 5,000 square foot factory to produce 1 million Stuffed Amigos (those cute and cuddly armadillos, tarantulas, and scorpions) each month. Constant returns to scale exists if the scale of operation expands to 2,000 workers in a 10,000 square foot factory (a doubling of the inputs) and production increases to exactly 2 million Stuffed Amigos.

The anticipated pattern for most production activities is that increasing returns to scale emerge for relatively small levels of production, which is then following by constant returns to scale and decreasing returns to scale.

Returns to scale are the flip side of economies and diseconomies of scale. Although economies and diseconomies of scale focus on changes in average cost, returns to scale focus on production. One way to view constant returns to scale is the quantity of production or the range or production in which the forces underlying increasing returns to scale exactly balance the forces underlying decreasing returns to scale.

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CONSTANT RETURNS TO SCALE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: May 16, 2025].


Check Out These Related Terms...

     | long-run production analysis | returns to scale | increasing returns to scale | decreasing returns to scale | long-run, microeconomics |


Or For A Little Background...

     | short-run production analysis | production inputs | production time periods | product | production | production cost | variables | labor | capital | law of supply | supply | principle | business | marginal analysis | factors of production | microeconomics | economies of scale | diseconomies of scale |


And For Further Study...

     | total product | marginal product | average product | production function | price elasticity of supply | division of labor | production possibilities | law of increasing opportunity cost | law of diminishing marginal returns | marginal returns | production stages | very long-run, microeconomics | constant-cost industry |


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