Macro Economics For downloading this contact- bikashkumar.bk100@gmail.com Prepared by Students of University of Rajshahi MD ISMAIL HOSSAIN K.M.NAFIZ(GROUP LEADER SADRUL AMIN SUJON ZANNATUL FERDOUS MD.SULTAN MAHMUD

1. WELCOME
EVERYONE
“LIFE IS LIKE ACCOUNTING
EVERYTHING MUST BE
BALANCED”

2. INTRODUCTION
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 factors
are not fixed. In some cases, return due to each successive unit is increased,
sometimes it decreased and sometimes the production return is constant.
These variations in returns were studied by PROF . MARSHALL, and he
propounded these results in three laws which was altogether named as LAWS OF
RETURNS .
Basically there are three laws of returns:
 LAW OF INCREASING RETURN
 LAW OF DIMNISHING RETURN
 LAW OF CONSTANT RETURNS

3. LAW OF INCREASING RETURN
When the return due to each successive unit is increased, then
that tendency is known as LAW OF INCREASING RETURN.
This law states that :
“An increase of labor and capital leads generally to
improved organization, which increases the efficiency of the work of
labor and capital”.
According to this law whenever a new dose of labor and capital is
applied it yield increasing returns. Also the cost of production
decreases.

4. LAW OF DIMINISHING RETURNS
When the return due to each successive additional unit, the production goes
on diminishing. It is known as diminishing returns and is explained through
LAW OF DIMINISHING RETURNS .
It states that :
“An increase in the capital and labor which leads to a less proportionate
return and increases the cost of production”.
According to this law whenever a new dose of labor and capital is applied it
yields decreasing return, and the cost of production is increased.

5. LAW OF CONSTANT
When the increase in productive unit
keeps the production constant, then the tendency is
known as LAW OF CONSTANT .
It states that :
“When an increase or decrease in output of a
productive unit makes no alteration in the cost of production .
In other word, when fresh doses of productive resources
results in an equal return, the law of return is said to be
operated”.

6. LAW OF
INCREASING
RETURN

7. INTRODUCTION
The universal law of variable proportions is the law of
increasing return.an industry is subject of the law of
increasing returns if extra investment in the industry is
following by more than proportionate rate, that is ,if the
marginal production increases .
In term of cost, the law of increasing returns means the
lowering of the marginal cost as industry is expanded.

8. ASSUMPTIONS OF THE LAW
 There is always a scope of improvement in
technology and techniques of production.
 At least one factor of production is assumed to be
invisible.
 Some factors are assumed divisible.
 There is no change in the prices of factors of
production.
 All units of variable factors are equally efficient.

9. Diagrammatical Representation of The law
10
12
14
16
18
Y
O X1 2 3 4 5
3
K
LABOUR
MP/TP

10. APPLICATIONS
 FACTORS OF PRODUCTION ARE COMBINED UP TO SOME
EXTENT
 AN INDUSTRY IS EXPANDED BYGETTING THE INTERNAL
AND EXTERNAL ECOMICS OF LARGE SCALE OF
PRODUCTION.
 IN INDUSTRIAL SACTOR HUMAN FACTORS ARE MORE
INVOLVED THAN NATURUL FACTOR .DUE TO THE
REASON THE NATURUL OBSTACLES ARE LESS

11. LAW OF DIMINISHING
RETURN

12. The law of diminishing returns says that each time we do something to receive
a benefit ,the benefit will be less and less.

13. Three Aspects Of The law of Diminishing Return
MP
AP
TP
Y
O X
Variable Service
Marginal
Product
Average
Product
Total
Product
First Stage Second
Stage
Third Stage
PRODUCT
AVERAGE- MARGINAL
NO OF
WORKER
S
A
TOTAL
RETURN
B
MARGINAL
RETURN
AVERAGE
RETURN
B/A
1 80 80 80
2 170 90 85
3 270 100 90
4 368 98 92
5 430 62 86
6 480 50 80
7 504 24 72
8 504 0 63
9 495 -9 55
10 440 -55 44

14. WHY THE LAW OF DIMINISHING RETURN
OPERATES?
WRONG COMBINATION: The law of diminishing return operates because the
combination of the factors of production ceases to represent a correct
proportion .It ceases to be an optimum combination.
SCARCITY OF FACTORS: In the words of Chapman,” The expansion of an
industry, provided that additional supplies of some agent in production ,which is
essential cannot be obtained ,is invariably accompanied at once or eventually by
decreasing returns ,other things being equal.”
IMPERFECT SUBSTITUTES:

15. IMPORTANCE OF THE LAW OF DIMINISHING
RETURNS
In the absence of the law of diminishing returns Cairnes, “The science of political economy
would be as completely revolutionized as if human nature itself were altered.”
based on extensive empirical evidence not theoretical reasoning

16. Limitations of The law of Diminishing Return
1.IMPROVED METHOD OF CUTIVATION
2.NEW SOIL
3.INSUFFICIENT CAPITAL
4.INDIVISIBLE GOODS
5.THE LAW DEPENDS ON THE SUPPLY OF THE SUBSTITUTES
AND COMPLEMENTS
6.INITIAL STAGES
7.NOT APPLICABLE FOR RARE COLLECTION

17. Law of Constant
Returns

18. Introduction
There can be a situation where neither law of diminishing return
operates and nor law of increasing returns operate.
-over there law of constant returns will operate
An industry is subject to the law of constant returns when,
-whatever the output or scale of production ,the cost per
unit remains unaltered ,or
-increased investment of labor and capital results in a
proportionate increase in the output.

19. ASSUMPTIONS:
 SOME FACTORS ARE ASSUMED TO BE VARIABLE.
 THERE IS NO INCREASE IN THE PRICE OF RAW
MATERIALS
 THERE IS NO CHANGE IN THE PRICE OF FACTORS OF
PRODUCTION.
 THE SUPPY OF VARIOUS FACTORS FOR AN
INDUSTRY SHOULD BE PERFECTLY ELASTIC .
 ALL UNITS OF VARIABLE FACTORS OF PRODUCTION
ARE EQUALLY EFFICIENT .

20. DIAGRAMATICAL REVIEW OF THE LAW
Y
O X
1 2 3 4
A B C D
2
4
6
8
MARGINAL
PRODUCTIVITY
UNIT OF LABOUR AND CAPITAL
MARGINAL PRODUCTIVITY CURVE

21. APPLICATION OF THE LAW
1.
This law is applicable in those sectors where human and natural factors play
their role, for example ,in industry making blankets ,pure natural wool is used
while blankets are prepared in the presence of human factors .
2.
Such factors where economics of human and natural factors are presented which
counter balanced each other and productivity is provided with constant rate .
3.
This law is applicable in such sectors where labors role is greater than other
factors of production .The law of constant returns operates by increasing the
units of labor force.

22. LAW OF RETURNS TO
SCALE

23. INTRODUCTION
The laws of returns to scale explain the behavior of output
in response to a proportional and simultaneous change in
inputs. Increasing inputs proportionately and
simultaneously is, in fact, an expansion of the scale of
production.

24. THREE PHASES OF RETURN TO
SCALEWhen a firm increases both the inputs proportionately, there are three
possibilities:
1.Total output may increase more than proportionately
2.Total output may increase proportionately
3.Total output may increase less than proportionately
Accordingly, there are three kinds of return to scale:
1. Increasing returns to scale
2. Constant returns To Scale
3. Decreasing returns to scale

25. RETURN OF SCALE
SERIAL
NUMBER
SCALE PRODUCT TOTAL OR RETURNS
(IN QUINTALS)
MARGINAL PRODUCT
1 1 WORKER+3ACRES LAND 2 2
2 2 WORKER+6ACRES LAND 5 3
3 3 WORKER+9ACRES LAND 9 4
4 4 WORKER+12ACRES LAND 14 5
5 5 WORKER+15ACRES LAND 19 5
6 6 WORKER+18ACRES LAND 24 5
7 7 WORKER+21ACRES LAND 28 4
8 8 WORKER+24ACRES LAND 31 3
9 9 WORKER+27ACRES LAND 33 2
STAGE
1:INCREASING
RETURNS
STAGE
2:CONSTANT
RETURNS
STAGE 3
:DECREASING
RETURNS

26. 2ND
STAGE
1
2
3
4
5
6
1 2 3 4 5 6 7 8 9 10
RETURN TO
SCALE

27. The Causes of Increasing
Returns To Scale

28. Constant Returns to Scale
When the change in output is proportional to the change in
inputs, it exhibits constant returns to scale.
The constant returns to scale are attributed to the limits of
the economies of scale. With expansion in the scale of
production, economies arise from such factors as
indivisibility of fixed factors, greater possibility of
specialization of capital and labor, use of labor saving
techniques of production, etc.

29. Decreasing Returns to Scale
The firms are faced with decreasing returns
to scale when a certain proportionate change
in inputs, k & l, lead to less than
proportionate change in output.

30. Causes of Diminishing Return
to Scale
The decreasing returns to scale are
attributed to the diseconomies of scale.
The most important factor causing this
is ‘the diminishing return to
management’. Another factor is the
exhaustibility of natural resources.

31. POSSIBLE QUESTIONS
WHY THE LAW OF DIMINISHING RETURNS APPLIES TO AGRICULTURE AND IS
IT APPLICABLE TO AGRICULTURE ONLY?

32. THANKYOU
FOR BEING
AN AWESOME AUDIENCE