![]() ![]() This can be achieved by hiring more workers to reach the maximum output or optimum capital-labor ratio.īeyond the optimum capital-labor ratio, there would be no effect of an increased labor on the productivity of labor because labor can substitute capital to a limited extent. Another important factor responsible for the increase of labor productivity is division of labor. Less number of labor lead to unutilized capital, because capital is indivisible.įor example, if the capital-labour ratio is 2:6 and capital is indivisible and labor hired is less than six, then capital is unutilized. Among these factors, one of the most important factors for the law of increasing returns is fixed capital. ![]() There are several factors that are responsible for the application of these laws. ![]() One is law of increasing returns in stage I and law of diminishing returns in stage II. There are two types of laws that work in the three stages of production. After that, the total output starts declining.įigure-2 shows the graphical representation of the three stages of production: As shown in Table-3, the total output reaches to maximum level at the twentieth worker. Refers to the stages in which the total product starts declining with an increase in number of workers. 1 able-3 shows the declining of marginal product as the number of workers reaches 12. Refers to the stage in which total output increases but marginal product starts declining with the increase in number of workers. The marginal output produced by tenth and eleventh worker is same, which implies that they yield constant returns. Refers to the stages of production in which the total output increases initially with the increase in number of labor table-3 shows the increase in marginal product till the number of workers increased to 10 and 11. ![]()
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