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