This law is an extension of the law of variable proportions in the long run. It describes relationship between outputs and the scale of inputs in the long run when all inputs are increased in the same proportion .

It states that when. all units of inputs are increased in the same proportion, the returns to scale at first increases at an increasing rate, than at a constant rate and later at decreasing rate.

It has been observed that when there is a proportionate change in the amounts of inputs, the behavior of output varies. The output may increase by a great proportion, by in the same proportion or in a smaller proportion to its inputs. This behavior of output with the increase in scale of operation is termed as increasing returns to scale, constant returns to. scale and diminishing returns to scale.

These three laws of returns to scale are now explained, in brief, under separate heads.