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What type of changes take place in total product and marginal product when there are : (a) increasing returns to a factor ? (b) diminising returns to a factor ? why do these changes take place |
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Answer» Solution :(a) When there are increasing RETURNS to a factor, total product (TP) increases at an increasing rate and marginal product (MP) ALSO rises. This change takes place due to following reasons: `**""` Better utilization of the fixed factor. `**""` Increased EFFICIENCY of variable Factor. (b) When there are diminishing returns to a factor, TP increases at a decreasing rate and MP starts declining. This phase ends when MP is zero and TP is maximum. This change in TP and MP takes place due to following reasons : `**""` Among different combinations between variable and fixed factor, there is one optimum combination, at which TP is maximum. After MAKING the optimum use of fixed factor, MP begins to fall. `**""` Among different combinations between variable and fixed factor, there is one optimum combination, at which TP is maximum. After making the optimum use of fixed factor, MP begins to fall. `**""` Factors of production are imperfect substitutes of each other. |
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