Building economics and sociology

1. Building economics and sociology
Revision
Sayeeda sumayya
17091AA051

2. Discuss with explanation about laws returns
governing production
• WHAT IS LAW OF RETURNS?
1. The law of returns operates in the short period. It explains the production behaviour of the firm with one factor variable while other
factors are kept constant.
2. It is implied in the fact that the quantitative definiteness of the effects brought about by any economic good is a necessary condition
of its being an economic good.
• TYPES OF LAW OF RETURNS
• The laws of returns are categorised into two types.
A. The law of variable proportion seeking to analyse production in the short period.
B. The law of returns to scale seeking to analyse production in long period.
• LAW OF VARIABLE PROPORTIONS
• It is also known as law of Diminishing Returns.
• According to Stigler, “ As equal increments of one input are added, the inputs of other productive services being held constant,
beyond a certain point, the resulting increments of produce will decrease i.e. marginal product will diminish”.
• According to Samuelson,” An increase in some inputs relative to other fixed inputs will in a given state of technology cause output to
increase, but after a point, the extra output resulting from the same addition of extra inputs will become less”.
• Three stages of the law: 1)increasing returns 2)diminishing returns 3) negative returns

3. Law of increasing returns
• The law of increasing returns is also called the
law of diminishing costs.
• The law of increasing return states that: “When
more and more units of a variable factor are
employed, while other factor remain fixed,
there is an increase of production at a higher
rate. The tendency of the marginal return to
rise per unit of variable factors employed in
fixed amounts of other factors by a firm is
called the law of increasing return”.
• An increase of variable factor, holding constant
the quantity of other factors, leads generally to
improved organisation.
• The output increases at a rate higher than the
rate of increase in the employment of variable
factor.

4. Law of diminishing return
• The law of diminishing returns (also called the Law
of Increasing Costs) is an important law of micro
economics.
• The law of diminishing returns states that: "If an
increasing amount of a variable factor are applied
to a fixed quantity of other factors per unit of time,
the increments in total output will first increase
but beyond some point, it begins to decline".
• If the input of one resource to other resources are
held constant, total product (output) will increase but
beyond some point, the resulting output increases will
become smaller and smaller".
• The law of diminishing return can be studied from two
points of view:
• As it applies to agriculture and
• As it applies in the field of industry.

5. Law of constant return
• The law of constant returns also called law of constant
cost.
• It is said to operate when with the addition of
successive units of one factor to fixed number of other
factors, there arises a proportionate increase in total
output.
• The yield of equal return on the successive doses of
inputs may occur for a very short period in the process
of production.
• The law of constant return may prevail in those
industries which represent a combination of
manufacturing as well as extractive industries.
• On the side of manufacturing industries, every
increased investment of labor and capital may result in
a more than proportionate increase in the total output.
• While on the other extractive side, an increase in
investment may cause, in general, a less than
proportionate increase in the amount of produce raised.

6. Illustration
• stages of the production with Graph analysis:
A. (Stage 1): The maximum value of the marginal product is at 4 and
maximum value of the average product relating to the marginal
product Colum is 3. This is intersection point where the maximum 6
units of production can be done by employing 2 labours. Up to this
point it is called as increasing returns stage.
B. (Stage 2): when we employee more than 2 labours ie. 3 labours total
production is raising but the marginal production is falling down from
4 to 3 and average product is nearly same. So this stage is stated as
decreasing returns to the production.
C. (Stage 3): at 6 labours employed the marginal production is -1 units
and the curve is cutting the X axis and moving down to the negative
position. Hence this stage is stated as the negative returns in the
production.