Law of Returns explained & note.

An increase in factor of production rate does not necessarily have to be in a certain proportion, These can be in three different proportions, Economists call these three different conditions law of return. Their explanation is given below:

LAW OF RETURN.

 1. Law of Increasing Returns.

2. law of Diminishing  Returns.

3. Law of Constant Return.

 1. Law of Increasing Returns.

In connection with the production of goods when the variable factor i.e. labor or machines are added. So the final product of each additional unit of the variable factor increases to a certain extent this increase is known as the law of increasing returns.

'Other things remain constant if producers increase variable factors of production land and labor .output measure at an increased rate marginal/additional products is increased or called increasing returns to scale.'

schedule:

This is explained in the following schedule.

Fixed Factor	Variable factor.	Marginal product.	Total product.	Production situation.
10 Units.	1	500	500	INCREASING RETURN.
10 Units.	2	1100	600	INCREASING RETURN.
10 Units.	3	1800	700	INCREASING RETURN.
10 Units.	4	2600	800	INCREASING RETURN.
10 Units.	5	3200	600	INCREASING RETURN.

 

Explanation.

 In the above schedule, the units of variable factors (labor and capital) are employed with fixed 10 units of land. The producer goes on expanding his business by investing successive units of inputs, and then marginal productivity goes on increasing up to the fifth unit of the variable inputs. At the 5th unit, the plant is working to its full capacity and it is not possible further to reap the economies of the large scale of production. Thus the total productivity increases at an increasing rate.

In the figure, the number of workers is on the x-axis while the marginal product on the y-axis is taken. So we get a marginal productivity curve.

This shows that the law of Increasing Return is being applied to Forth laborer.

2. law of Diminishing  Returns.

The law Diminishing  Returns is one of the most important laws of economics. When the law Diminishing  Returns takes effect, the final product of each surplus unit of the variable factor falls. As a result, the total production increases at a lower rate than the increase in more units. As a result, the average yield also starts to fall.

Law states that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively diminishing output.

'Other things remain constant if producers increased the factor of production Land and labor, After the addition of a certain amount of variable inputs which lead to the optimum and efficient utilization of fixed input, the output starts diminishing. '

This is because any further addition to the variable factor after the point of efficient utilization renders the fixed factor inadequate relative to the variable factor. 

 This is the reason why the marginal and average products decline at this stage.

schedule:

Suppose a farmer transfers several units of labor on five acres of land. After a certain number, the increase in finished products decreases.

This is explained in the following schedule.

Fixed Factor  LAND&LABOUR	Variable factor.	Marginal product.	Total product.	Production situation.
5 acres	1 labor	40	40	diminishing return
5 acres	2 labor	50	90	diminishing return
5 acres	3 labor	60	150	diminishing return
5 acres	4 labor	50	190	diminishing return
5 acres	5 labor	40	230	diminishing return
5 acres	6 labor	30	250	diminishing return

 In the schedule, we see that the number of laborers on a certain factor is constantly increasing. So after a certain limit, that is, from the fourth laborer, the marginal product begins to decrease. It is shown diagram below:

In the figure, the units of labor on the X-axis and the product on the Y-axis marginal product are taken.

3. Law of Constant Return.

This Law Indicates the state of equilibrium between the law of diminishing return and the law of increasing return.

This law applies to the agricultural sectors, ie agriculture, mining, and fisheries in the same way as it applies to the industrial sectors.

This law can be explained as follows;

'If any fixed factor in an industry or business such as land, or the increase in the variables, land and capital, the marginal product is the same. So this industry or business will be under the influence of the Law of Constant Return.'

schedule:

Suppose a firm owner increases the number of workers on his machines(fixed factor) which is 5.

This is explained in the following schedule.

Fixed Factor	Variable factor.	Marginal product.	Total product.	Production situation.
5	1	50	50	law of constant return
5	2	50	100	law of constant return
5	3	50	150	law of constant return
5	4	50	200	law of constant return

In this schedule, we see that as the owner of the firm increases the number of workers. By the way, the marginal products it gets are the same. It is shown diagram below:

In the figure labor on the x-axis and on the y-axis are taken to be the final product. The figure shows that the marginal product obtained on each additional unit remains the same Law of Constant Return is applies.

Law of Returns.Note

This law has been in force for a short time. In this, the owner of the firm converts only variable factors(land, labor, or capital) of production without changing the specific factors of production. There are three types of rules:

-Increasing Returns.

-Diminishing  Returns.

-Constant Return.

When the producer wants to increase his production, he increases the number of workers. Initially, with each increase, there is an increase in the marginal product, After that, the productivity of each additional laborer becomes equal, After that, the output from each additional labor decreases. If such production increases, then initially the law of increasing return is applied.  when production is equal Law constant is applied. And when the addition of additional labor began to reduce marginal production so, the law of diminishing retune is applied. As shown in the following schedule.

schedule:

Number of Labor	Marginal Product.	Total Product.	Land. Area Acres
1	100	100	5
2	150	150	5
3	450	200	5
4	700	250	5
5	975	275	5
6	1250	275	5
7	1450	200	5
8	1600	150	5

 

It is shown diagram below:

In this, diagram we see that the law of increasing return is being applied up to the third unit of labor, the marginal product of the third and five is constant so the law of constant return is applied. five to nine-unit of labor installation reduces the marginal product. so the law of diminishing return is applied.

from the desk of M.A F Saleem.