Explain the difference between marginal returns to factor and returns to scale?


The short-run is defined as the period during which one cannot vary at least one of the factors of production, i.e. at least one factor of production is fixed. The long-run is defined as the period during which one can vary all of the factors of production, i.e. all factors of production are variable.

Marginal returns to a factor is the increase in output that results from the addition of one extra unit of the specified factor of production, whilst keeping all other factors fixed. This is a short-run concept. Returns to scale refers to the rate by which output increases if all inputs are increased by the same factor. This is a long-run concept.