Q. 11

(a) What is meant

Answer :

a) In short, run, assuming that the other factors of production or constant, the proportionate change in the total product is greater than the proportionate change in the units of a variable factor. This is called the law of increasing returns to a variable factor.

b) The two reasons for the decreasing returns to a variable factor are :

a. Overutilization of the fixed factor: In the third stage of the production, the variable factor is much more as compared to the fixed factor. This leads to the overutilization of the fixed factor.

b. Negative marginal product: Throughout the third stage of production, the Total Product is falling. The additional product by the additional unit of labour becomes negative. The cost of employing labour is higher than its contribution to the total product.

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