{"id":3779,"date":"2020-03-03T05:39:23","date_gmt":"2020-03-03T05:39:23","guid":{"rendered":"https:\/\/commerceiets.com\/?p=3779"},"modified":"2020-03-03T05:39:23","modified_gmt":"2020-03-03T05:39:23","slug":"law-of-constant-returns","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/law-of-constant-returns\/","title":{"rendered":"LAW OF CONSTANT RETURNS"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_72 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/#LAW_OF_CONSTANT_RETURNS\" title=\"LAW\nOF CONSTANT RETURNS\">LAW\nOF CONSTANT RETURNS<\/a><ul class='ez-toc-list-level-2' ><li class='ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/#ASSUMPTIONS_OF_LAW_OF_CONSTANT_RETURNS\" title=\"ASSUMPTIONS OF LAW OF CONSTANT RETURNS\">ASSUMPTIONS OF LAW OF CONSTANT RETURNS<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/#EXPLANATION_OF_THE_LAW\" title=\"EXPLANATION OF THE LAW\">EXPLANATION OF THE LAW<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/#A_Law_of_Constant_Returns\" title=\"(A) Law of Constant Returns:\">(A) Law of Constant Returns:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/#B_Law_of_Constant_Costs\" title=\"(B) Law of Constant Costs:\">(B) Law of Constant Costs:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/#APPLICATION_OF_THE_LAW\" title=\"APPLICATION OF THE LAW\">APPLICATION OF THE LAW<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1 class=\"has-text-align-center wp-block-heading\" id=\"law-of-constant-returns\"><span class=\"ez-toc-section\" id=\"LAW_OF_CONSTANT_RETURNS\"><\/span><strong>LAW\nOF CONSTANT RETURNS<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h1>\n\n\n\n<p>The law of constant returns is also empirically valid and operates in the transitional stage between the <a href=\"https:\/\/commerceiets.com\/law-of-diminishing-returns\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Law of Diminishing Returns (opens in a new tab)\">Law of Diminishing Returns<\/a> as well as The <a href=\"https:\/\/commerceiets.com\/law-of-increasing-returns\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Law of Increasing Returns. (opens in a new tab)\">Law of Increasing Returns.<\/a><\/p>\n\n\n\n<p>According to the Law, when in order to\nincrease output, units of labour and capital are increased; output and cost\nalso increase in the same proportion.<\/p>\n\n\n\n<p><strong>ACCORDING\nTO MARSHALL<\/strong><strong><\/strong><\/p>\n\n\n\n<p>\u201cIf the actions of law of increasing and\ndiminishing returns are balanced we have the law of constant returns.\u201d <\/p>\n\n\n\n<p><strong>ACCORDING\nTO STIGLER<\/strong><\/p>\n\n\n\n<p>\u201cThe law of constant returns states that when all the\nproductive services are increased in a given proportion, the product is\nincreased in the same proportion.\u201d <\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"assumptions-of-law-of-constant-returns\"><span class=\"ez-toc-section\" id=\"ASSUMPTIONS_OF_LAW_OF_CONSTANT_RETURNS\"><\/span><strong>ASSUMPTIONS OF LAW OF CONSTANT RETURNS<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>This law is based on the following\nassumptions:<\/p>\n\n\n\n<ol class=\"wp-block-list\"><li>Some factors (labor and capital) are assumed to be variable.<\/li><li>There is no increase in the price of raw materials.<\/li><li>There is no change in the price of factors of production.<\/li><li>The supply of various factors for an industry should be perfectly elastic.<\/li><li>All units of variable factors of production are equally efficient.<\/li><\/ol>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"explanation-of-the-law\"><span class=\"ez-toc-section\" id=\"EXPLANATION_OF_THE_LAW\"><\/span><strong>EXPLANATION OF THE LAW<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>The law of constant returns can\nbe explained in the forms:<\/strong><\/p>\n\n\n\n<p>(A) Law of Constant Returns and<\/p>\n\n\n\n<p>(B) Law of Constant Costs.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"a-law-of-constant-returns\"><span class=\"ez-toc-section\" id=\"A_Law_of_Constant_Returns\"><\/span><strong>(A) Law of Constant Returns:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The law of constant returns can be illustrated with the help of following Table. This table indicates that production will be made by using different units of labour and capital.<\/p>\n\n\n\n<p>Table reveals that production increases in the same ratio in which the factors of production are increased. When the factors of production are doubled, production is doubled from 5 meters to 10 meters. Likewise, it increases to 10, 15, 20, and 25 respectively. In this stage marginal and average production remains constant.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"622\" height=\"280\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/CONSTANT-RETURNS.jpg\" alt=\"\" class=\"wp-image-3782\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/CONSTANT-RETURNS.jpg 622w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/CONSTANT-RETURNS-300x135.jpg 300w\" sizes=\"auto, (max-width: 622px) 100vw, 622px\" \/><\/figure>\n\n\n\n<p>As seen in figure factors of production and marginal production are represented along OX-axis and OY-axis respectively. Curve CR is parallel to OX.<\/p>\n\n\n\n<p>This shows that with the increase\nin the factors of production, marginal production increases in the same\nquantity that is 5 per unit. It means that production is increasing in the same\nratio in which factors of production are increasing.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"b-law-of-constant-costs\"><span class=\"ez-toc-section\" id=\"B_Law_of_Constant_Costs\"><\/span>(B) Law of Constant Costs:<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>Law of Constant Returns can also be explained in term of costs. According to it average and marginal cost of production remain constant as a result of additional application of the variable factor along with the fixed factor of production. It means, whether production increases or decreases, no change occurs in average cost. The law of constant cost can be elaborated with the help of table below.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"586\" height=\"186\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/clip_image018_thumb.jpg\" alt=\"\" class=\"wp-image-3781\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/clip_image018_thumb.jpg 586w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/clip_image018_thumb-300x95.jpg 300w\" sizes=\"auto, (max-width: 586px) 100vw, 586px\" \/><\/figure>\n\n\n\n<p><a href=\"http:\/\/cdn.economicsdiscussion.net\/wp-content\/uploads\/2015\/05\/clip_image018.jpg\" target=\"_blank\" rel=\"noopener\"><\/a><\/p>\n\n\n\n<p>Table 7 shows that total production and total cost increase in the same proportion. As a result, there is no change in average cost due to increase in production. Average cost remains Rs. 5.00 per unit. <\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"application-of-the-law\"><span class=\"ez-toc-section\" id=\"APPLICATION_OF_THE_LAW\"><\/span><strong>APPLICATION OF THE LAW<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>For the application of this law,\nthe following points are very important:<\/p>\n\n\n\n<ol class=\"wp-block-list\"><li>This law is applicable in those sectors where human and natural factors play their role, for example, in industry making blankets, pure natural wool is used while blankets are prepared in the presence of human factors.<\/li><li>Such factors where economies of human and natural factors are presented which counter      balanced each other and productivity is provided with constant rate.<\/li><li>This law is more applicable in such sectors where labor&#8217;s role is greater than other factors of production. The law of constant returns operates by increasing the units of labor force.<\/li><\/ol>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/demand\/\">Theory of Demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-demand\/\">Law of Demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/demand-function\/\">Demand Function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/exceptions-of-law-of-demand\/\">Exceptions of law of demand<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/elasticity-of-demand\/\">Elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/change-in-demand\/\">Change in demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/price-elasticity-of-demand\/\">Price elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-law-of-demand-and-elasticity-of-demand\/\">Law of demand Vs Elasticity of demand<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/factors-affecting-price-elasticity-of-demand\/\">Factors affecting price elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/production-function\/\">Production function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-short-run-long-run-production-function\/\">Short run vs long run production function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-variable-proportions\/\">Law of variable proportions<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/types-of-demand\/\">Types of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/managerial-economics\/\">Managerial economics<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/characteristics-of-managerial-economics\/\">Characteristics of managerial economics<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-managerial-economics\/\">Scope of managerial economics<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/utility-analysis\/\">Utility analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-diminishing-marginal-utility\/\">Law of diminishing marginal utility<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-equi-marginal-utility\/\">Law of equi marginal utility<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consumer-equilibrium\/\">Consumers Equilibrium<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/indifference-curve-analysis\/\">Indifference curve analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consumer-equilibrium-using-indifference-curve-analysis\/\">Consumer equilibrium using indifference curve analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/relationship-between-tp-ap-and-mp\/\">Relationship between TP, AP and MP<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-increasing-returns\/\">Law of increasing returns<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/law-of-diminishing-returns\/\">Law of diminishing returns<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/\">Law of constant returns<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/returns-to-scale\/\">Returns to Scale<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/economies-and-diseconomies-of-scale\/\">Economies and diseconomies of scale<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/concept-of-costs\/\">Concept of costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/relationship-between-ac-and-mc\/\">Relationship between AC and MC<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/traditional-theory-of-cost\/\">Traditional theory of costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/modern-theory-of-cost\/\">Modern theory of costs<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/explicit-vs-implicit-costs\/\">Explicit vs Implicit costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/revenue\/\">Revenue<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perfect-competition\/\">Perfect competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopoly-meaning\/\">Monopoly<\/a>&nbsp;<\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/price-discrimination\/\">Price discrimination<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-perfect-competition-and-monopoly\/\">Difference between perfect competition and monopoly<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perfect-and-monopolistic-competition\/\">Perfect Vs Monopolistic competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopoly-and-monopolistic-competition\/\">Monopoly and monopolistic competition<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/product-differentiation-strategy\/\">Product differentiation strategy<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopolistic-competition\/\">Monopolistic competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/national-income-in-india\/\">National Income in India<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/\">Measurement of national income in India<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/consumption-function\/\">Consumption function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/keynesian-psychological-law-of-consumption\/\">Keynes Psychological law of consumption<\/a><\/td><td><\/td><td><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"266\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1024x266.jpg\" alt=\"LAW OF CONSTANT RETURNS\" class=\"wp-image-787\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1024x266.jpg 1024w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-300x78.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-768x199.jpg 768w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1536x398.jpg 1536w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize.jpg 1920w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption>LAW OF CONSTANT RETURNS<\/figcaption><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>LAW OF CONSTANT RETURNS The law of constant returns is also empirically valid and operates in the transitional stage between the Law of Diminishing Returns as well as The Law of Increasing Returns. According to the Law, when in order to increase output, units of labour and capital are increased; output and cost also increase&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;LAW OF CONSTANT RETURNS&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":3786,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[113,92],"tags":[],"class_list":["post-3779","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-managerial-economics","category-micro-economics"],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3779","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=3779"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3779\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/3786"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=3779"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=3779"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=3779"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}