Law of Variable Proportions

1. PRESENTATION ON 1ST AND 2ND STAGE OF LAW OF
VARIABLE PROPORTIONS
PRESENTED BY-
DEBIPRIYA BANERJEE
ROLL NO - 5
TERM- I

2. CONTENTS
Production Function
Fixed factor and variable factor
Law of variable proportions
Stage 1 and Stage 2
Causes of increase and decrease
Assumptions
Case study

3. Raw
materials
Labour
Capital
 Input and Output
relationship
 Inputs
 Mathematical representation
Q = f ( f1, f2, f3,……….fn)
Where,
Q = Quantity of output produced
f1, f2 = Quantities of n different inputs

4. FIXED FACTOR AND VARIABLE FACTOR
Fixed factor
1. Quantity cannot be
changed
2. Remain the same in short
period
3. The cost of this inputs are
called fixed cost
4. Example – land, Buildings,
Capital e.t.c
Variable factor
1. It can be changed in short
run as well as long run
2. Can be used in different
amounts
3. The cost of variable inputs
are called variable cost
4. Example- Raw materials,
Labour services e.t.c

5. THE LAW OF VARIABLE PROPORTIONS
 More and more variable factors
 combined with fixed factors
 Marginal product may rise
 Eventually a situation will come
 MP of variable factor starts declining
 MP may be zero or negative

6. TABLE FOR BETTER UNDERSTANDING
MACHINERY
(FIXED FACTOR)
LABOUR
(VARIABLE FACTOR)
TOTAL
PRODUCT
MARGINAL
PRODUCT
1 1 2 2
1 2 5 3
1 3 9 4
1 4 12 3
1 5 14 2
1 6 15 1
1 7 15 0
1 8 14 -1

8. STAGE 1 AND STAGE 2
STAGE 1 ( ‘STAGE OF INCREASING RETURNS’ )
 TP first increases at an increasing rate, then
increases at an decreasing rate
 MP first increases and then starts declining
STAGE 2 (‘STAGE OF DECREASING RETURNS’)
 TP increases at a decreasing rate
 MP declining and become zero

9. CAUSES OF INCREASING AND DECREASING
RETURNS TO A FACTOR
Causes of increasing returns
to a factor
 Fuller utilisation of fixed factor
 Division of labour and increase
in efficiency
 Better coordination between the
factors
Causes of decreasing returns
to a factor
 Fixity of the factor
 Imperfect factor substitutes
 Poor coordination between the
factors

10. ASSUMPTIONS
 Ratio can be changed
Variable factors are
homogeneous
Technology cannot be
changed

11. CASE STUDY:- MASTERJI’S GROCERRY SHOP
Masterji’s shop is very popular and stocks all kinds of goods- from rice and
wheat to processed food, imported chocolates and cheese. There is a small
section which has a photocopying machine and a STD booth. Masterji runs
the shop with the help of his children.
 The family noticed that the number of shoppers varied between times and
days (See table)
 During weekdays, Masterji could manage with his children, but not in week
ends.
DAY MORNING AFTERNOON EVENING
MON- FRI 50 40 65
SAT & SUN 165 85 30

12. CASE STUDY:- MASTERJI’S GROCERRY SHOP
 Sunday morning buyers were ‘ value crowd’- bulk buyers, spent
extra on something new and attractive but wanted a pleasant
experience and were upset at the overcrowded shop
 At certain times there were not many shoppers
 Masterji employed 3 assistants during week ends, but that did not
solve the problem as the shop had a small floor area and only one
billing machine
1.Can you explain Masterji’s problem in terms of
law of variable proportions?
2. Can you suggest in detail how Masterji can
improve the functioning of the shop?

13. POSSIBLE SOLUTIONS
Q.1 Ans :- In this case, we can see there was only one billing machine which is the
fixed factor and assistants are the variable factor. In Monday to Friday there were
small number of customer so Masterji could manage but during week end because
of small floor area shop got overcrowded that’s why they were unable to manage.
He included 3 assistants during week ends, it means he has to pay them but profit
was less because machine was only one ( fixed), he was trying to increase labour
services (variable) so after a certain time profits started declining.
Q.2 Ans:- Possible suggestion
 They can take 2 part time assistants during weekends instead of 3 because at
certain time there were not many shoppers, that time they could manage. This will
save his money as well as provide good management. The profit will maximum
 Because the floor area was too small he can extend his shop, in this way he will get
more space and could be able to prevent crowd.
 Like week end he can give some offers in weekday also to target those people who
were interested to buy product at weekend. Like this way the customer will be well
distributed from Monday to Sunday.
 We know, in long term both the inputs can be changed, though the machine was
fixed factor but in long term he can increase the quantity of billing machine.

14. THANK YOU