The document discusses the production function concept in economics. It explains the causes of increasing returns to a variable factor, including fuller utilization of fixed factors, division of labor leading to efficiency gains, and better coordination between factors. The document also outlines causes of diminishing returns to a variable factor, such as overutilization of fixed factors leading to wear and tear, imperfect substitutability between factors, and poor coordination between factors from increasing the variable factor too much. Finally, it prompts the reader to draw total product, marginal product, and average product curves related to the production function.

1. • by sanjay jogai
PRODUCTION FUNCTION
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27. CAUSES OF -
INCREASING RETURNS TO A
FACTOR
FULLER UTILISATION OF THE FIXED FACTOR –
Fixed factors are underutilized so calls for
greater application of variable factor.
DIVISION OF LABOUR & INCREASE IN
EFFICIENCY – adding VF (labour) enables
process based division of labour and thus
increases the efficiency/productivity.
BETTER COORDINATION BETWEEN THE
FACTORS – additional VF improves the degree
of coordination between the fixed factor and
variable factors.
DIMINISHING RETURNS TO A
FACTOR
FIXITY OF THE FACTOR – more and more
of VF forces over utilization of fixed factor
and hence greater wear & tear and loss of
efficiency.
IMPERFECT FACTOR SUBSTITUTABILITY-
more and more of variable factor cannot
be always used in place of capital, hence
output starts diminishing.
POOR COORDINATION BETWEEN THE
FACTORS – increasing use of VF disturbs
the ideal factor ration. This results in poor
coordination between the fixed and the
variable factors.
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28. Try yourself :
• Draw the TP, MP & AP curve -
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29. THANK YOU
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