Increasing returns to a factor occur because of the following factors: 

1. Fuller Utilisation of the Fixed Factor: In the initial stages, fixed factor (such as machine) remains underutilised. Its fuller utilisation calls for greater application of the variable factor (Labour). Hence, initially (so long as fixed factor remains underutilised) additional units of the variable factor add more and more to total output, or marginal product of the variable factor tends to increase.

2. Division of Labour and Increase in Efficiency: Additional application of the variable factor (Labour) enables process based division of labour. Specialised workers may be used for different processes of production. This increases efficiency or productivity of the variable factor. Accordingly, marginal productivity tends to rise.

3. Better Coordination between the Factors: So long as fixed factor remains underutilised, an additional application of the variable factor tends to improve the degree of coordination between the fixed and variable factors. As a result, marginal product (MP) increases and total product (TP) increases at the increasing rate.