Question

Answer the following question:
Discuss briefly, any two reasons for the decreasing returns to a variables factor.

Answer 1

The reasons for the decreasing returns to a variable factor are given as follows:

1. Over utilisation of the fixed factors- In the third stage of production, the variable factor is in excessive relative to the fixed factors. This leads to the over utilisation of the fixed factor, thereby negative returns to a factor sets-in.

2. Negative Marginal Product- Throughout this stage the TP curve is continuously falling, consequently, the additional product by the additional unit of labour becomes negative. This implies that in this stage of production, the cost of employing labour is substantially higher than its contribution to the total product.