Title Unit 4 - Theory of Production - Applied Economics.pdf ✅

www.ckundan.com.np 4 respectively. Another method is to take the scale line or expansion path connecting the equilibrium points Q, P and R. OS is the scale line or expansion path joining these points. It shows that the isoquants 100, 200 and 300 are equidistant. Thus, on the OS scale line OQ = QP = PR which shows that when capital and labor are increased in equal proportions, the output also increases in the same proportion. Properties: 1. Factor Intensity: The factor intensity can be measured by taking the ratio between a and b. a. If a/b>1, there is an operation of labor-intensive production technique. b. If a/b<1, there is an operation of capital intensive production technique. 2. Efficiency of Production: The efficiency of production can be measured by the coefficient A. a. If the value of A is higher, there is a higher degree of efficiency of production. b. If the value of A is lower, there is a lower degree of efficiency of production. 3. Returns to Scale: The various degrees of returns to scale can be measured by taking the sum of a and b. Let, a+b = V a. If V > 1, there is an operation of increasing returns to scale. b. If V = 1, there is an operation of constant returns to scale. c. If V < 1, there is an operation of decreasing returns to scale.