In a given state of technology when the units of variable factors are increased with the units of other fixed factors, the marginal productivity increases, it is called law of increasing returnsCauses of Initial Increasing Returns:The phase of increasing returns starts when the quantity of a fixed factor is abundant relative to thequantity of the variable factor. As more and more units of the variable factor are added to the constant quantity of the fixed factor, it is more intensively and effectively used. This causes the production toincrease at a rapid rate. Another reason of increasing returns is that the fixed factor initially taken is indivisible. As more units of the variable factor are employed to work on it, output increases greatly due tofuller and effective utilization of the variable factor.(ii) Stage of Diminishing Returns. This is the most important stage in the production function. In stage2, the total production continues to increase at a diminishing rate until it reaches its maximum point (H)where the 2nd stage ends. In this stage both the marginal product (MP) and average product of the variable factor are diminishing but are positive.Causes of Diminishing Returns:The 2nd phase of the law occurs when the fixed factor becomes inadequate relative to the quantity of thev ariable factor. As more and more units of a variable factor are employed, the marginal and average product decline. Another reason of diminishing returns in the production function is that the fixed indivisible factor is being worked too hard. It is being used in non-optima! proportion with the variable factor, Mrs. J. Robinson still goes deeper and says that the diminishing returns occur because the factors of production are imperfect substitutes of one another.(iii) Stage of Negative Returns. In the 3rd stage, the total production declines. The TP, curve slopes downward (From point H onward). The MP curve falls to zero at point L2and then is negative. It goes below the X axis with the increase in the use of variable factor (labor).Causes of Negative Returns:The 3rd phases of the law starts when the number of a variable, factor becomes, too excessive relative,to the fixed factors, A producer cannot operate in this stage because total production declines with the employment of additional labor.A rational producer will always seek to produce in stage 2 where MP and AP of the variable factor are diminishing. At which particular point, the producer will decide to produce depends upon the price of the factor he has to pay. The producer will employ the variable factor (say labor) up to the point where the marginal product of the labor equals the given wage rate in the labor market.