Earlier Economists
distinguished three laws of returns; they are diminishing, increasing and
constant return, Modern Economist, however, hole that these three laws are
really three aspects of the same law, viz. “Law of Variable Proportions”. They
represent the three stages of this law.
Law of diminishing returns:
Dr. Marshall states the law thus “An increase
in the capital and labour applied in the cultivation of land causes in general
a less than proportionate increase in the amount of the produce raised, unless
it happens to coincide with an improvement in the art of agriculture.
A) Law of increasing
returns:
As the proportion of one factor in a
combination other factors is increased up to a point, the marginal product will
increase or the total product will increase with increasing roofs. Here the
rate of increase us represented by Marginal Product (MP). MP is defined as
change in total product resulting from unit change in input. In agriculture,
the initial state of production shows increasing rate. But in non-agricultural
sector (industry) generally this law operates.
B) Law of constant returns:
The law of constant returns
is said to be operated when retunes (MP) remains the same as the business is
expanded. The constant return however is observed for a short period.
C) Law of decreasing
returns:
The law of decreasing returns is the, opposite
to the law of increasing returns. Here MP is declining continuously. The total
product is increasing but with decreasing rate, and eventually it 1so declines and the MP becomes negative. This law is
generally operates in agriculture.
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