Law of Variable Proportion
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Transcript of Law of Variable Proportion
Presented by: Himanshu Garg
MBA (Sem-I)
IntroductionMeaningProduction ScheduleGraphical RepresentationStages of the LawAssumptionsPostponementConclusion
When producing an economic product, the supplier must decide how much of each
input to use: – Land – Labor – Capital In particular, the supplier must examine the
relation between input and output.
Law of Variable Proportion states that as more and more units of the variable factor are applied with fixed factors, in the beginning total output increases at increasing rate. Beyond a certain point, it rises at diminishing rate. Finally total production starts declining with every increase in variable input.
Units of labour
Total product
Average product
Marginal product
Stages
0 0 0 0 Stage 1 Stage of
increasing returns
1 4 4 4
2 10 5 6
3 18 6 8
4 24 6 6
5 28 5.6 4 Stage 2 stage of
diminishing returns
6 28 4.6 0
7 20 2.8 -8 Stage 3Stage of negative returns
8 16 2 -4
Tota
l pro
du
ct
MP
AP
Point
of infl
exion
s1 s2 s3
s1 s2 s3
Marg
inal p
rod
uct a
nd
ave
rag
e p
rod
uct
Units of labour
AT
TP
xM
stage1
stage2 stage3
FIRST STAGETotal product increases at an increases rate
and later at a diminishing rate.Average product increases and reaches its
maximum point.Marginal product initially increases, then starts
declining, but continues to remain above the average product.
Total Product increases at a diminishing rate.Average Product continues to fall.Marginal Product decreases and finally
becomes zero.
Total Product begins to fall.Average Product continues to fall.Marginal Product becomes negative.
One factor is variable & other factors are fixed.
All units of variable factor are fixedTechnology is assumed to be given &
constant.The Law applies only in the short period.Factors of production are not perfect
substitute for each other.
The application of the law of variable proportions can be postponed if improvement in technology take place.
The operation of the law may be postponed when the factor of production are perfect substitute of each other.
The greatest productivity is at the end of Stage I. The greatest output is at the end of Stage II. Therefore, Stage II is ideal, because there is a balance between productivity and total output.
The Law of Variable Proportions states that while varying only one input, output will
go through three stages: – Increasing returns – Diminishing returns (ideal) – Negative returns