The document outlines a course on business economics taught by Dr. Shuchi Singhal, focusing on production theory and the law of variable proportions. It details learning outcomes, course objectives, and essential concepts such as production functions, factors of production, and pricing decisions. Additionally, it explores the implications of the law of variable proportions in 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: s.singhal@dme.ac.in

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

4. Syllabus

5. Unit-III : (Theory of Production)
5
3.1 MEANING AND CONCEPT OF PRODUCTION
3.2FACTORS OF PRODUCTION AND PRODUCTION FUNCTION
3.3 FIXED AND VARIABLE FACTORS
3.4LAW 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. By: Shuchi Goel 7
3.4 LAW OF VARIABLE
PROPORTION
(SHORT RUN
PRODUCTION
ANALYSIS)-Part 1

8. By: Shuchi Goel 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
/

9. By: Shuchi Goel 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.

10. By: Shuchi Goel 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.

11. By: Shuchi Goel 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’.

12. By: Shuchi Goel 12
Assumptions:
Law of Variable proportions is based upon the following assumptions:
1. The state of technology is given and constant.
2. 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.
3. All the units of variable factor are homogenous, i.e, equal in efficiency.
4. Input prices remain unchanged.
5. Output is measured in physical units.

13. By: Shuchi Goel 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

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

15. By: Shuchi Goel 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