Least-Cost Combination

The problem of least-cost combination of factors refers to a firm getting the largest volume of output from a given cost outlay on factors when they are combined in an optimum manner. In the theory of production, a producer will be in equilibrium when, given the cost-price function, he maximizes his profits on the basis […]

THE THREE STAGES OF PRODUCTION

According to Cassels, there are three stages in the production process, when we vary one factor of production, the other factor remaining the same. In stage I, there is increasing average returns to the factor of production, i.e.d(q/l)/dl > 0 i.e. MPL > APL. In stage I, the average product is increasing and the marginal […]

Distinction Between returns to a Variable Factor And Returns to Scale

Returns to a Variable Factor. The law of returns to a variable factor states that with the increase in the units of a variable factor, keeping other factors constant, the increase in total production becomes, after some point, smaller an smaller In this case marginal product first increase then becomes constant and finally it declines […]

Cause for the operation of diminishing returns to scale 

As a firm expands its output, after a certain point, it encounters growing diseconomies. These diseconomies, ultimately, more than cancel out the economies of large scale production and lower down the long run average production. The economies of production are swamped by diseconomies of production. The main diseconomies are Managerial Diseconomies. These diseconomies occur primarily […]

Diminishing Returns to Scale

When the increase in output is less than proportionate to the given increase in the quantities of all factor-inputs, it is termed diminishing returns to scale. For instance, if the increase in factor-inputs is 20 percent and the resultant increase in output is less than 20 percent (say 15 percent) or a doubling of inputs […]

Constant returns to Scale

Thus the constant returns to scale means that if all factor-inputs are varied at a certain percentage rate, output will change by the same rate. Or, when the increase in output is proportional to the increase in the quantities of all factor-input; it is termed as constant returns to scale. The constant returns to scale […]

Increasing Return to Scale

Increasing Returns to scale refers to a situation where the total output increases in a greater proportion than the increase in units of factor inputs. When the increase in output is more than proportionate to the given increase in the quantities of all factor-inputs, it is termed as increasing returns to scale. For instance, if […]

Returns to Scale Economic Point of View

In the run all factors are variable; hence the expansion of output may be achieved by varying all factor-inputs. When we change all factor-inputs in the same proportion, the scale of production is also changed. The study of the effect of change in the scale of production on the amount of output comes under the […]

Isoquants

An isoquants is a curve on which the various combinations of labor and capital show the same output. “An is product curve is a curve along which the maximum achievable rate of production is constant.” It is also known as a production indifference curve or a constant production curve Just as an indifference curve shows […]

Law of variable Proportions 

The law of variable proportions is also named as the laws of returns or the laws of returns to a variable factor. The law states that as the quantity of a variable impute is increased by equal doses, keeping the quantities of other inputs constant, total product will increase, but after a point, at diminishing […]