Question

Under law of variable proportions, the first stage refers to ________________.

• A. Increasing Returns stage
• B. Diminishing Returns stage
• C. Negative Returns stage
• D. Constant stage

Answer 1

Answer: (A)

Increasing Returns stage

In the increasing returns stage, initially there it too little of a variable input in comparison to the fixed input resulting in the under utilisation of the fixed input. Thus as the quantity of variable input is initially increased the, fixed input is being better utilised, resulting in an increase in efficiency and thus the AVC initially falls.