Every new business has to apply three laws in the production process. These three laws depend upon different conditions. Following are the laws:
- Law of increasing return
- Law of constant return
- Law of decreasing return.
Law of Increasing Return:
This law can be defined as “Other things remain same, if the marginal production of a good increases due to the increase in the variable factors of production” or in other words we can say that if increase in factors of production cause an increase in marginal production of a good than it will be known as law of increasing return.
In the schedule shown, it is assumed that land is a fixed factor having quantity of 1 acre.
We can see that cost/wage of labor is shown constant at 100. So, increasing the number of units will increase the marginal productivity.
Following are the conditions which are assumed in this law:
- The units of variable factors of productions must be of same quality.
- The units of variable factors of production should be available according to the need.
- Fixed factors of production should remain constant.