Law Of Variable Proportions (Economics)
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Law Of Variable Proportions (Economics)

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Law Of Variable Proportions (Economics) Presentation Transcript

  • 1. 1
  • 2. Production refers to the transformation of resources into outputs of goods and servicesFOR INSTANCE : General motors (G.M.) hires workers who use machinery infactories to transform steel , plastic , glass , rubber , etc into AUTOMOBILESSteel + Plastic + Glass + Rubber + Motor parts = CRUZEPRODUCTION FUNCTION : It’s the functional technical relationship betweenphysical inputs and outputs of a firm. P = F [ L, K , S ]
  • 3. Factor of productionIn economics, factors of production (orproductive inputs or resources) are anycommodities or services used to produce goodsand services. 3
  • 4. FIXED AND VARIABLE INPUTS• FIXED FACTOR OF PRODUCTION :• It is defined as the quantity of which cannot be changed in the short run as the level of output changes e.g. building , plants , supply of skilled labour.• VARIABLE INPUTS It is defined as the one in which the quantity may be changed in the short run as the level of output changes. Some examples are raw material , Labour services. 4
  • 5. HOW WILL TOTALOUTPUT CHANGEWHEN ALL INPUTSEXCEPT FOR ONE ARE FIXED ?
  • 6. This law states that as one variablefactor is combined with other fixedfactor of production then theproportion of the factors is changedand the TP at first rises more thanproportionately , thenequiproportionately , finally less thanproportionately. 6
  • 7. (1) Only 1 factor is variable.(2) All units of variable factors are same.(3) Technique of production is constant.(4) Factor’s of production can be used in different proportions. 7
  • 8. TitleBEHAVIOR TP MPSTAGE 1 TP increases at increasing Increasing rateSTAGE 2 TP increases at diminishing BECOMES max & STARTS rate becomes MAX & falling , becomes ZERO. CONSTANTSTAGE 3 TP starts falling IT becomes NEGATIVE 8
  • 9. SCHEDULEUnits of Labour TP MP 1 80 80 2 170 90 I Stage 3 270 100 4 368 98 5 430 62 6 480 50 II Stage 7 505 24 8 505 0 9 495 -9 III Stage 10 470 -25 9
  • 10. STAGE OF RATIONAL DECISION THE GREATEST OUTPUT IS AT THE END OF STAGE 2. THEREFORE STAGE 2 IS IDEAL BECAUSE THERE IS BALANCE BETWEEN PRODUCTIVITY AND TOTAL OUTPUT. 10
  • 11. 11