Question

Explain the reasons for : (i) increasing returns to a factor and (ii) increasing returns to scale.

Answer 1

(i) It means that TPP increases at an increasing rate and consequently MPP rises. It is due to (a) more efficient utilization of fixed input and (b) division of labour and specialisation due to increase in the quantity of variable input.

(ii) It means output increasing in greater proportion than the increase in all input simultaneously and in the same proportion. It is due to (a) more division of labour leading to specialisation that increases produtivity and(b) use of specialized machines.