Livestock Economics, Marketing and Business Management

INCREASING RETURNS PRODUCTION FUNCTION OR DECREASING COST

• In this case, every additional or marginal unit of input adds more and more to the total product than the previous unit. i.e., addition to total product is at an increasing rate.
• In actual practice, the cases of purely increasing returns are rarely available.(Value of one unit of input Rs 500). (Click here to view graph)

Example

No. of units of Input (X)	Total output (Y)	∆ X	∆ Y	MP ( ∆ Y/ ∆ X)	Average Variable cost =Unit variable cost /AP
10	100	-	-	-	500/10 =50
20	110	10	10	1	500/5.5 = 90.90
30	190	10	90	9	500/6.33 =78.99
40	300	10	110	11	500/7.5 = 66.67
50	450	10	150	15	500/9.0 = 55.56

• Shape of the curve will go steeper and steeper with added inputs.