Decreasing returns to scale (DRS) holds when a proportional enlarge in all the factors of construction leads to an increase in the output by less than the proportion. Or DRS mainly occurs when increasing inputs lead to a proportionally smaller increase in output. For example, if both labour and capital are increased by 'n' times but the effect increase in output is less than 'n' times, then we say that the construction function exhibits DRS.

Algebraically, DRS exists when* f *(nL,nK)< n. *f* (L, K)