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Law of Variable Proportion

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30 views9 pages

Law of Variable Proportion

Uploaded by

Sethi Lilu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Law of Variable Proportion

Law of Variable Proportion


• Law of variable proportions occupies an important place in
economic theory.
• This law examines the production function with one factor
variable, keeping the quantities of other factors fixed.
• In other words, its refers to the input output relation when output
is increased by varying the quantity of one input.
• Since, under this law we study the effects on output of variation in
factor proportions, this is also known as the law of variable
proportions.
• It is obvious from the above definition of the law of variable
proportions that it refers to the behaviour of output as the
quantity of one factor is increased, keeping the quantity of other
factor fixed and further it states that the marginal product and
average product will eventually decline.
Assumption of the Law

1. The state of technology is assumed to be given and


unchanged.
2. There must be some inputs who’s quantity is kept
fixed.
3. The law is based upon the possibility of varying the
proportions in which the various factors can be
combined to produce a product.
Stages of Law of Variable Proportion
• The behaviour of output when the varying quantity of
one factor is combined with a fixed quantity of the
other can be divided into three distinct stages.
Stages of Law of Variable Proportion
Stage-I: Increasing Return
• The stage-I shows increase in total output to a point at an
increasing rate.
• In the above figure from the origin to the point F, slope of
the total product curve TP is increasing that is up to the
point F, the total product increasing at an increasing rate.
• As the slope of the total product curve increase Marginal
Product rises. But, from point F onwards the total product
increases at a diminishing rate and so Marginal Product
falls but it is positive.
• The point F is called the point of inflection upto which TP
increases.
• The stage-I ends when Average Product at its highest
point.
Stages of Law of Variable Proportion
Stage-I: Increasing Return
• Though in the first stage Marginal Product first rises
and then falls but Average Product rises all over.
• In the first stage the quantity of fixed factor is too
much in relation to the variable factor. If we
withdraw some of the fixed factor the total
production will not hampered.
• So, in the first stage Marginal product of the fixed
factor is negative.
• Stage-I is known as the stage of increasing return.
Stages of Law of Variable Proportion
Stage-II: Diminishing Return
• So far as the stage-II is concerned Total Product
increases at a diminishing rate. The second stage
ends where we reach at the point H.
• In this stage both Marginal Product and Average
Product declines but they are positive.
• When stage-II ends the Marginal Product becomes
Zero.
• The second stage is known as stage of diminishing
return.
Stages of Law of Variable Proportion
Stage-III: Decreasing/Negative Return
• In stage-III Total Product curves slope downward.
That leads to Marginal Product to be negative and
MP curve goes below x-axis.
• In this stage variable factor in relation to fixed factor
is negative. So, this stage is called the stage of
negative return.
The Rational Stage of Production
• A rational producer will never choose to produce in
stage-III where Marginal Product of the variable
factor is negative.
• A rational producer will also not choose to produce in
stage-I where the Marginal Product of fixed factor is
negative.
• A rational producer will always seek to produce in
stage-II where both the marginal product and
average product of the variable factor are
diminishing.
• The stage-II represents the range of rational
production decisions.

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