I'm having trouble with returns to scale mathematical notation which i found counterintuitive even I'm fine with its definition. Any help will be very appreciated.
There are three possible types of returns to scale: increasing returns to scale, constant returns to scale, and diminishing (or decreasing) returns to scale.
If output increases by the same proportional change as all inputs change then there are constant returns to scale : $F(aK,aL) = aF(K,L)$.
If output increases by less than that proportional change in all inputs, there are decreasing returns to scale : $F(aK,aL) < aF(K,L)$.
If output increases by more than the proportional change in all inputs, there are increasing returns to scale $F(aK,aL) > aF(K,L)$.
If we define (with $a > 0$) :
- $F(aK,aL)$ : simultaneous and proportional inputs increase
- $aF(K,L)$ : output increase
Then, to me increasing returns to scale should be written in this way : $F(aK,aL) < aF(K,L)$ since the change in the output is greater in proportion than the change in the inputs. And the other way for decreasing returns to scale. This is not clear to me.
I hope you will help me to fix this misunderstanding.