A production function has decreasing returns to scale if an equal percentageincrease in all factors of production leads to a smaller percentage increase in output.For example, if we double the amounts of capital and labour, and output less thandoubles, then the production function has decreasing returns to scale. This mayhappen if there is a fixed factor such as land in the production function, and this fixedfactor becomes scarce as the economy grows larger.A production function has increasing returns to scale if an equal percentageincrease in all factors of production leads to a larger percentage increase in output.For example, if doubling inputs of capital and labour more than doubles output, thenthe production function has increasing returns to scale. This may happen ifspecialization of labour becomes greater as the population grows.