#53, REASONS OF INCREASING /DIMINISHING /NEGATIVE RETURNS TO FACTOR / LAW OF VARIABLE PROPORTION Video Lecture - Class 12

Ans. There are several reasons for increasing returns to factor in the Law of Variable Proportion. One reason is the specialization of labor, where each worker becomes more efficient at a specific task over time, leading to increased productivity. Another reason is the utilization of larger and more efficient machinery or technology, which can enhance the productivity of the factors of production. Additionally, economies of scale, where production costs decrease as output increases, can contribute to increasing returns to factor. Moreover, improvements in managerial skills and techniques can also lead to increased productivity and returns to factor. Lastly, favorable external factors such as government policies, access to resources, or technological advancements can further amplify returns to factor.

Ans. Diminishing returns to factor occur when the increase in one factor of production leads to a proportionately smaller increase in output. There are several reasons for diminishing returns to factor in the Law of Variable Proportion. One reason is the limited availability of other factors of production, such as land or capital, which restricts the productivity of the additional factor being employed. Another reason is the principle of diminishing marginal productivity, wherein as more units of a variable factor are added, the additional output produced by each additional unit diminishes. Additionally, inefficiencies in the utilization of factors, such as poor coordination or lack of skill, can contribute to diminishing returns. Moreover, physical constraints or limitations in the production process can also result in diminishing returns to factor. Lastly, external factors like unfavorable government policies, resource scarcity, or technological constraints can further exacerbate diminishing returns.

Ans. Negative returns to factor occur when the employment of an additional unit of a factor leads to a decrease in total output. Several reasons can contribute to negative returns to factor in the Law of Variable Proportion. One reason is the overcrowding of the fixed factors, such as land or capital, which limits the productivity of the additional factor being employed. Another reason is the occurrence of diseconomies of scale, where an increase in output leads to an increase in production costs and a decrease in efficiency. Additionally, the factor being employed may not be complementary to the other factors in the production process, resulting in a decrease in output. Moreover, inadequate management or poor decision-making can also lead to negative returns to factor. Lastly, external factors like natural disasters, political instability, or economic downturns can further contribute to negative returns.

Ans. Increasing returns to factor can have a positive impact on production and profitability. When returns to factor increase, it means that the additional units of a factor being employed contribute to a proportionately higher increase in output. This leads to an overall increase in production levels. With higher production levels, businesses can achieve economies of scale, which can result in lower production costs per unit and increased profitability. Additionally, increasing returns to factor indicate improved efficiency and productivity, allowing businesses to meet the growing demand for their products or services. This can lead to increased market share, higher sales, and ultimately, higher profitability.

Ans. Diminishing returns to factor can have a negative impact on production and profitability. When returns to factor diminish, it means that the additional units of a factor being employed contribute to a proportionately smaller increase in output. This can lead to a decrease in production levels, making it challenging for businesses to meet the demand for their products or services. With lower production levels, businesses may not be able to achieve economies of scale, resulting in higher production costs per unit and reduced profitability. Moreover, diminishing returns to factor indicate inefficiencies in the utilization of resources, which can lead to higher costs and lower productivity. This can further impact profitability by reducing the competitiveness of the business in the market.