Question

Causes of diminishing return to a factor *
Fuller utilisation of the fixed factor
Division of labour and increase in efficiency
Fixity of the factor

Answer 1

The causes of diminishing returns to a factor are:

1. Disturbing the optimum proportion: There is an optimum combination of fixed and variable factors where fixed factors are fully utilized. When more variable factor is added to the same fixed factor, optimum combination is disturbed causing diminishing returns.

2. Imperfect Substitutability of factors of production: Up to some extent, we can substitute one factor for another factor but there is a limit to that. Therefore, diminishing returns occurs because we cannot keep substituing labor for capital.

Fuller utilization of the fixed factor and Division of labor to increase efficiency are causes for increasing returns.