What causes Increasing returns to a variable factor in the production process?

 The Law of Increasing Returns was propounded in the seventeenth century by Antonia Seera. This law is nothing but an improvement over the law of diminishing returns. 

According to this law, “Production of a commodity increases in a larger proportion as compared to the increase in the units of factors of production.” For instance, we want to increase the production of shoes.

The producer increases factors of production by 20 per cent and as a result the production of shoes increases by 35 per cent.

Thus, we can say that the production of shoes obeys the Law of Increasing Returns. This law is also known as the Law of Diminishing Costs. It means cost per unit of the extra output falls as the industry expands.

“An increase of labour and capital leads generally to improved organization, which increases the efficiency of the work of labour and capital. Therefore, an increase of labour and capital generally gives returns which increases more than in proportion.”

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