Tuesday, July 31, 2012

Class XI, Principles of Economics, "Law of Constant Returns"

Law of Constant Returns

Similarly, in some of the cases, the increase in the productive unit keeps the production constant. This tendency is known as law of Constant Returns.
When an increase or decrease in the output of an industry makes not alteration in the cost of production per unit, the law of constant returns is said to operate. In other words when fresh doses of productive resources results in an equal return, it is called constant returns.
The law of constant returns operates in those industries where the cost of raw material and manufacturing cost are half and half. In other words the law operates where man and nature dominate equally. It is also said that a point where the opposite tendencies of diminishing returns and increasing returns are in equilibrium is the Constant Returns.
Possible examples of industries where the law applies are cane growing and sugar making, Iron-ore mining and steel making, cane growing and iron ore are subject to law of diminishing turns whereas sugar making and steel making to law of increasing turns. In these industries the advantage of increasing returns are neutralized by increasing cost of raw materials.

No comments:

Post a Comment