Tuesday, July 31, 2012

Class XI, Principles of Economics, "Law of Increasing Returns"

Law of Increasing Returns

In order to increase the production, a producer has to increase the proportion of its fraction of production. However, the returns due to variations in the factors are not fixed. In some cases, return due to each successive unit is increased. This tendency is known as Law of Increasing Returns.
This law is mostly found to be operating in manufacturing industries. This law was first propounded by Prof. Marshall, in his words, the law states that:
“An increase of labour and capital leads generally to improved organization, which increases the efficiency of the work of labour and capital.”

According to this law whenever a new dose of labour and capital is applied it yields increasing returns. Also the cost of production diminishes.

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