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.

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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
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 0
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.

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
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

18. THANK YOU