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Production_and_Law_of_Variable_Proportions_Presentation.pptx
- 1. Production and theLaw of Variable Proportions • Theory of Production – Economics
- 2. Introduction to Production •Production means creation or addition of utility • Process of transforming inputs into outputs • Helps satisfy human wants
- 3. Factors of Production •Land – Natural resources • Labour – Human effort • Capital – Machines and tools • Entrepreneur – Organizer and risk bearer
- 4. Importance of Production •Increases national income • Generates employment • Improves standard of living • Promotes economic growth
- 5. Meaning of Lawof Variable Proportions • Studies relationship between variable factor and output • One factor varies while others remain fixed • Output first increases, then decreases
- 6. Assumptions of theLaw • Technology remains constant • Only one factor is variable • Other factors are fixed • Units are homogeneous • Operates in the short run
- 7. Why It Operatesin the Short Run • Some factors cannot be changed quickly • Factory size and machines remain fixed • Only labour can be increased or decreased
- 8. Total Product (TP) •Total output produced with given inputs • Increases as labour increases initially • Shows overall production level
- 9. Marginal Product (MP) •Additional output from one extra unit of labour • Measures contribution of each additional worker • MP = Change in TP / Change in Labour
- 10. Average Product (AP) •Output per unit of labour • Shows productivity of each worker • AP = TP / Labour
- 11. Three Stages ofthe Law • Stage I – Increasing Returns • Stage II – Diminishing Returns • Stage III – Negative Returns
- 12. Stage I –Increasing Returns • TP increases at increasing rate • MP rises and AP rises • Better utilization of fixed factors • Efficiency improves
- 13. Stage II –Diminishing Returns • TP increases at decreasing rate • MP falls but remains positive • AP falls • Most efficient and rational stage
- 14. Stage III –Negative Returns • TP starts declining • MP becomes negative • Overcrowding and inefficiency occur
- 15. Graph Setup (Axes) •X-axis – Labour (Variable Factor) • Y-axis – Product or Output • Shows relation between input and output
- 16. Total Product Curve •First rises steeply • Then rises slowly • Finally declines • Shows three stages of production
- 17. MP and APCurves • Both curves are inverted U-shaped • MP rises faster and falls faster • MP cuts AP at AP's maximum point
- 18. Relationship Between TP,MP, and AP • When MP rises, TP rises faster • When MP falls, TP rises slowly • When MP becomes negative, TP falls
- 19. Stages on theGraph • Stage I – Increasing returns • Stage II – Diminishing returns (rational stage) • Stage III – Negative returns • Stages separated by vertical lines
- 20. Importance / Significanceof the Law • Helps optimum use of resources • Prevents overuse of labour • Assists production planning • Useful for managerial decisions
- 21. Limitations of theLaw • Assumes constant technology • Difficult to measure output accurately • Applicable only in short run • Based on simplified assumptions
- 22. Conclusion • Production dependson combination of factors • Output changes with variation in labour • Stage II is the most efficient stage • Law is essential for production decisions