Law of Variable Proportions

Law of Variable Proportions

1. ETHIRAJ COLLEGE FOR WOMEN (Autonomous) Chennai – 600 008 Prepared by Swetha Shree R M.A.,M.Phil. Department of Business Economics Topic: Law of Variable Proportions

2. LAW OF VARIABLE PROPORTIONS

3. TYPES OF PRODUCTION FUNCTION SHORT - RUN (Inputs kept constant , one input is varied) LONG - RUN (Varying all inputs) RETURNS TO SCALE LAW OF VARIABLE PROPORTIONS

4. LAW OF VARIABLE PROPORTION The Law of Variable Proportions which is the new name of the famous Law of Diminishing Returns. This law examines the production function with one factor variable, keeping the other factors fixed. The law occupies an important place in Economic theory

5. Refers to the input-output relation when output is increased by varying the quantity of one input. Since under this law we study the effect on output of variation in factor proportions this is also known as the law of variable proportions.

6. 添加标题 Enter subtitle According to Stigler ''As equal increments of one input are added, the inputs of other productive services being held constant, beyond a certain point, the resulting increments of produce will decrease i.e., the marginal product will diminish". According to Benham "As the proportion of one factor in a combination of factors is increased, after a point, first the marginal, and then the average product of that factor will diminish" . DEFINITION

7. Assumptions of Law The state of Technology in production remains constant and unchanged. Only one factor input is made variable and other factors are kept constant. It is possible to vary the proportions in which the various inputs are combined. All units of the variable factor are homogeneous. Finally, it is also assumed that the entire operation is for short run,as in the long run all inputs can be variable.

8. POINTS TO RECOLLECT !!!!! Total Product → It is the total of output, resulting from efforts of all factors of production. TP= P*Q Average Product → It is the total product per unit of the variable factor. AP=TP/N Marginal Product → It is an addition made to the Total Product as a result of production of one more unit of output.

9. UNITS OF LABOUR (L) TOTAL PRODUCT (QUINTALS) (Q) AVERAGE PRODUCT (QUINTALS) Q/L MARGINAL PRODUCT (QUINTALS) ᐃQ/ ᐃL 1 80 60 80 STAGE I 2 170 85 90 3 270 90 100 4 368 92 98 STAGE II 5 430 86 62 6 480 80 50 7 504 72 24 8 504 63 9 495 55 -9 STAGE III 10 480 48 -15 TABLE 1

10. DIAGRAM The behaviour of output when the varying quantity of one factor if combined with a fixed quantity of other can be divided into three distinct stages. x axis → quantity of variable factors y-axis → the total product, average product and marginal products

11. STAGE 1 👉 total product increases at an increasing rate. 👉 The total product (TP) increases sharply up to the point F that is when the marginal product is at the maximum. 👉 so the stage I refers to the increasing stage where the total product, the marginal product and the average product are increasing. it is the increasing returns stage .

12. THE POINT OF INFLEXION the point where the total product stops increasing at an increasing rate and starts increasing at a diminishing rate At the point of inflexion the marginal product is at its maximum.

13. STAGE 2 👉 In the second Stage the total product continues to increase but at a diminishing rate until it reaches the point H. 👉 In this state the marginal product and average product are declining but are positive. 👉 At the end of the second stage at point H the total product is at the maximum and the marginal product is zero where it cuts the x axis. 👉 the second stage is the stage of diminishing Returns.

14. STAGE 3 👉 the total product declines and therefore the TP curve slopes downward. 👉 the marginal product becomes negative. 👉 This state is called the stage of negative Returns.

15. THE STAGE OF OPERATIONS i n which stage the producer will Seek to produce the commodities ???? Being rational producer will not come to the III stage where the marginal product becomes negative; he will not produce negative Returns. Stage II represents the range of rational production decision. the producer will also not choose to produce in stage I this stage, the marginal product increases with an increase in the variable factor.

16. RECALL based on short production function. applicable in all industries, but more In agriculture. when the quantity of variable factors is increased keeping constant, other factors, eventually AP and MP will decline. Third stage is unfeasible because MP becomes negative Rationale producer prefers the second stage where TP reaches maximum, MP becomes zero, not negative. and AP decreases.

17. THE THREE STAGES OF OPERATION STAGES TERM USED TOTAL PRODUCT AVERAGE PRODUCT MARGINAL PRODUCT STAGE I Increasing Returns to the Factor Starts from the Origin Increases at an increasing rate Starts from the Origin Increases till the maximum point Increases Reaches the maximum Starts falling STAGE II Diminishing Returns to the Factor Increases at a decreasing rate till it reaches the maximum point Falls continuously Falls continuously till it is equal to zero STAGE III Negative Returns to the Factor Falls Falls continuously It is negative

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