Question

What is meant by increasing returns to a variable factor?

Answer 1

During this phase of increasing returns to a factor, TP increases at an increasing rate and is also accompanied by a rising MP curve. The MP curve attains its maximum point corresponding to the point of inflection of the TP curve. Throughout this stage, AP also continues to rise.

Answer 2

Increasing returns to a variable factor refer to a situation in which each additional unit of the variable component contributes increasingly to the overall product, i.e., when the marginal product of a variable factor rises as more of it is used.