3.4.pptx-LAW OF VARIABLE PROPORTION (SHORT RUN PRODUCTION ANALYSIS)

LAW OF VARIABLE PROPORTION (SHORT RUN PRODUCTION ANALYSIS)

1. Business Economics 107 Unit- 3 Faculty Name: Dr. Shuchi Singhal Designation: Associate Professor School/ Dept : Management Email address of Faculty Member: [email protected]

2. Programme Outcomes 2 PO1: Apply knowledge of various functional areas of business PO2: Develop communication and professional presentation skills PO3: Demonstrate critical thinking and Analytical skills for business decision making PO4: Illustrate leadership abilities to make effective and productive teams PO5: Explore the implications and understanding of the process of starting a new venture PO6: Imbibe responsible citizenship towards a sustainable society and ecological environment PO7: Appreciate inclusivity towards diverse cultures and imbibe universal values PO8: Foster Creative thinking to find innovative solutions for various business situations

3. Course Objective and Course Outcomes 3 CO1:Understand the fundamental concepts of Business Economics. CO2:Analyze the relationship between consumer behaviour and demand. CO3:Explore the theory of production through the use of ISO-QUANTS. CO4:Understand the concept and relevance of short-term and long-term cost. CO5:Examine pricing decisions under various market conditions. CO6:Analyse economic challenges posed to businesses

4. Syllabus

5. Unit-III : (Theory of Production) 5 3 .1 MEANING AND CONCEPT OF PRODUCTION 3 .2 FACTORS OF PRODUCTION AND PRODUCTION FUNCTION 3 .3 FIXED AND VARIABLE FACTORS 3.4 LAW OF VARIABLE PROPORTION (SHORT RUN PRODUCTION ANALYSIS )-Part 1 3.5 LAW OF VARIABLE PROPORTION (SHORT RUN PRODUCTION ANALYSIS)-Part 2 3.6 LAW OF VARIABLE PROPORTION (SHORT RUN PRODUCTION ANALYSIS)- Part 3 3.7 LAW OF VARIABLE PROPORTION (SHORT RUN PRODUCTION ANALYSIS)-Part 4 3.8 LAW OF RETURNS TO A SCALE(LONG RUN PRODUCTION ANALYSIS) THROUGH THE USE OF ISOQUANTS- Part 2 3.9 LAW OF RETURNS TO A SCALE(LONG RUN PRODUCTION ANALYSIS) THROUGH THE USE OF ISOQUANTS-Part 3 3.10 LAW OF RETURNS TO A SCALE(LONG RUN PRODUCTION ANALYSIS) THROUGH THE USE OF ISOQUANTS- Part 4 3.11 LAW OF RETURNS TO A SCALE(LONG RUN PRODUCTION ANALYSIS) THROUGH THE USE OF ISOQUANTS- Part 5

6. 3.4 Assumptions Law of Variable Proportion Causes 6

7. 3. 4 LAW OF VARIABLE PROPORTION (SHORT RUN PRODUCTION ANALYSIS)-Part 1 By: Shuchi Goel 7

8. Suggested Readings 1. Author : Christopher R. Thomas & S. Charles Maurice Title of the Book : Managerial Economics-Foundations of Business Analysis and Strategy Chapter’s Name: Production and Cost in the Short Run 2. Author : A. Koutsoyiannis Title of the Book : Modern Microeconomics Chapter’s Name : Theory of Production https://www.toppr.com/guides/fundamentals-of-economics-and-management/theory-of-production/law-of-variable-proportions / By: Shuchi Goel 8

9. 3. 4 LAW OF VARIABLE PROPORTION (SHORT RUN PRODUCTION ANALYSIS)-Part 1 The laws of production describe the technically possible ways of increasing the level of production. Output may increase in various ways. Output can be increased by changing all factors of production. This is possible only in the long run. Thus, returns to scale refers to the long-run analysis of production. By: Shuchi Goel 9

10. In the short run, output may be increased by using more of the variable factor while capital (or other factors) are kept constant. The marginal product of the variable factor will decline eventually as more and more quantities of this factor are combined with other constant factors. The expansion of output with one factor (at least) constant is described by the law of diminishing returns of the variable factor, which is often referred to as the law of variable proportions or returns to factor . By: Shuchi Goel 10

11. The law of variable proportions states that as we use more and more units of some factor of production to work with one or more fixed factors, the marginal product of that factor will eventually decline. When the quantity of one input is varied, keeping other inputs constant, the proportion between factors changes. This is why the law is named ‘Law of Variable proportions’. By: Shuchi Goel 11

12. Assumptions : Law of Variable proportions is based upon the following assumptions: The state of technology is given and constant. Quantity of at least one factor input is constant and one factor input is variable. It is only in this way that the firm can alter the factor proportions and know its effect on output. All the units of variable factor are homogenous, i.e , equal in efficiency. Input prices remain unchanged. Output is measured in physical units. By: Shuchi Goel 12

13. Three Stages of Law of Variable Proportions In the short run, output may be varied by varying the quantity of the variable factor(s) while keeping the quantity of other factors constant. The behaviour of output in such situation falls into three distinct stages, as illustrated in figure 1 By: Shuchi Goel 13

14. Figure 1: Law of Variable Proportions By: Shuchi Goel 14 Source: E- Pathshala Labour Labour

15. Conclusion The law of variable proportions states that as we use more and more units of some factor of production to work with one or more fixed factors, the marginal product of that factor will eventually decline By: Shuchi Goel 15