Types of factor- product relationship /Laws of Returns

1. Constant marginal rate of return

• In constant returns, the amount of product increases by the same magnitude for each additional unit of input.

 

A hypothetical numerical example of fertilizer response on wheat yield

Dose of fertilizer (Kg) (X)	Marginal dose	Total Product of wheat (Kg) (Y)	Marginal Yield (kg)	Marginal rate of return
0	–	1300=a	–	–
10=a	10	1350	50	50/10=5
20	10	1400	50	5
30	10	1450	50	5
40	10	1500	50	5
50	10	1550	50	5

 

• The production function in graph is a straight line, having same slope throughout the entire range.
• The constant return production function can be presented by the algebraic equation of the farm Y=a+bx.
• The estimated equation of the example given above is Y = 1300+5x.
• This shows that 1300kg of wheat are produced without applying fertilizer and wheat output (Y) increases by 5 kg for every increase of 1 kg of fertilizer.

 

2. Increasing marginal rate of return

• In this case, every additional or marginal unit of input adds more to the total product than previous unit.
• The shape of the curve will go steeper and steeper with the added inputs i.e. slope gets convex to the origin.
• This means that marginal product will go on increasing as more and more units of inputs are added.

3. Decreasing marginal rate of return

• In this type of function, each additional unit of inputs adds less to the total product than the previous unit did.
• Diminishing marginal return exist.
• This function exists in almost every practical situation in agriculture.

An example with hypothetical data of different doses of fertilizers on wheat yield

Dose of fertilizer (kg)	Marginal dose Δx	Total product of wheat (Y)	Marginal yield (kg, Δy)	Marginal rate of returns (kg) Δy/Δx
0	–	500	–	–
10	10	1400	900	900/10 = 90
20	10	2100	700	70
30	10	2600	500	50
40	10	3000	400	40
50	10	3300	300	30
60	10	3500	200	20

 

• The curve is concave to origin. This is a technological law of biological responses and is applicable in almost all practical situation of agricultural production under varied farm situation.