law of variable proportions

1. UNIT-3
MANAGERIAL
ECONOMICS

2. 2

3. PRODUCTION FUNCTION
 A production function can be represented in the form
of a mathematical model of equation as Q = f (
Ld,L,K,T etc.)

4. The law explains the short-run production function.
 When the quantity of one input is varied, keeping other
inputs constant, the proportion between
factors changes.
 When the proportion of variable factors
increases, the total output does not always increase in
the same proportion, but in varying proportion.

5. Assumptions of the Law
 Only one factor is variable while others are held
constant.
 All units of the variable factor are homogeneous.
 There is no change in Technology.
 It is possible to vary the proportions in which different
inputs are combined.
 The products are measured in physical units, i.e., in
quintals, tonnes etc.

6. PRODUCTION SCHEDULE
QUANTITY
OF LABOUR
TOTAL
PRODUCT
(TP)
AVERAGE
PRODUCT (AP)
MARGINAL
PRODUCT (MP)
1 20 20 -
2 50 25 30
3 90 30 40
4 120 30 30
5 140 28 20
6 150 25 10
7 150 21.5 0
8 130 16.25 -20
9 100 11.1 -30

8. Title
BEHAVIOR TP MP
STAGE 1 TP increases at increasing
rate
Increasing
STAGE 2 TP increases at
diminishing rate becomes
MAX & CONSTANT
BECOMES max &
STARTS falling , becomes
ZERO.
STAGE 3 TP starts falling IT becomes NEGATIVE
8

9. CONCLUSION
 A rational producer will never produce in stage 3,
where MP is negative.
 The producer producing in stage 1 will not be
making best use of fixed factor and he will not be
utilizing fully the opportunity of increasing
production by increasing quantity of variable factor.

10. CONCLUSION
 A rational producer will produce in stage 2, where
both MP and AP of variable factors are
diminishing.

11. CASE STUDY

12. Case study: Pratik’s Grocery
Shop
 Pratik’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. MR. Pratik
runs the shop with
the help of his family

13.  The family noticed
that the number of
shoppers varied
between times and
days (See table)
 During weekdays, MR.
Pratik could manage
with his family, but not
in week ends.
Morning Afterno
on
Evening
Mon-
Friday
50 40 65
Sat-
Sunda
y
165 85 30

14.  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.

15.  He 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 Pratik’s problem in terms of law of
variable proportions?
2.Suggest in detail how he can improve the functioning
of the shop.