returns to scale

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returns to scale

the relationship between OUTPUT of a product and the quantities of FACTOR INPUTS used to produce it in the LONG RUN. Where, for example, doubling the quantity of factor inputs used results in a doubling of output then constant returns to scale’ are experienced. Where ECONOMIES OF SCALE are present, a doubling of factor inputs results in a more than proportionate increase in output. By contrast, where DISECONOMIES OF SCALE are encountered, a doubling of factor inputs results in a less than proportionate increase in output.
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The technical efficiency scores both under constant returns to scale (CCR model) and variable returns to scale (BCC model) options based on the DEA model are presented in table 3.
In addition, the equation can be presented in a Variable Returns to Scale (VRS) format by adding the following additional constraint.
In this study, the input-oriented variable returns to scale (VRS) model is applied for getting the TE scores in the first stage because constant returns to scale (CRS) can be employed where industries or firms operate at their optimal scale.
From the variable returns to scale perspective, the results show the opposite situation than CCR, starting 2008 until 2014 the average efficiency of state banks is higher than private banks, even reaching three consecutive years the maximum score of 1 as can be observed in Chart 2.
Table (1) Technical efficiency of traditional fishing boats using different engine horsepower, under constant and variable returns to scale.
Under the CCR models, assuming a constant return to scale, only two out of twenty nine MFIs are overall efficient (means efficient on social, financial and overall dimensions-including all input and output variables) while under BCC models, assuming variable returns to scale, ten MFIs are efficient on social, financial and overall dimensions.
The average variable returns to scale (VRS) technical efficiency scores were 63%, 64%, 78%, 78% and 88% respectively during the review period.
2 percent respectively, but its variable returns to scale efficiency reduced by 0.
Variable returns to scale means that any multiplication of input produces the same more or less multiplied output.
Table 2 represents the result of estimating efficiency with the assumption of variable returns to scale.
Then we use the CRS model assuming constant returns to scale for computing technical efficiency, and the VRS model assuming variable returns to scale to compute management and scale efficiency.

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