Q10 of 38 Page 1

What is meant by ‘negative returns to a factor’ ? Discuss any two

reasons behind negative returns to a factor.


Negative returns to a factor states that if more and more units of a variable factor are employed with the fixed factor, after a certain level of output, the marginal product of the variable factor will be negative and total product will fall.

The two reasons behind negative returns to a factor are:


a. An increase in the variable factor alongwith fixed factor, after a certain level of output will lead to negative marginal product and the total product wil fall.


b. The use of both the factors beyond a certain optimum level will disturb the work relationship among them.


More from this chapter

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5

Explain briefly the central problem of ‘‘For whom to produce’’.

 7

Given the following schedule, state at which level of output, will the firm

be at equilibrium and why.



 18

If marginal propensity to consume is 80% and is constant at all levels of

income, and the autonomous consumption is Rs. 400 crores, construct


consumption function of the given hypothetical economy.


 19

State which of the following statements are true or false. Give valid

reasons.


(a) According to Keynesian theory of employment, a state of


under-employment can never exist in an economy.


(b) In a two-sector economy, if income is zero, average propensity to


consume will also zero.