Himanshu Garg
MBA (Sem-I)
Introduction
Meaning
Production Schedule
Graphical Representation
Stages of the Law
Assumptions
Postponement
Conclusion
When producing an economic product, the
supplier must decide how much of each input
to use:
– Land
– Labor
– Capital
In particular, the supplier must examine the
relation between input and output.
Law of Variable Proportion states that as
more and more units of the variable factor are
applied with fixed factors, in the beginning
total output increases at increasing rate.
Beyond a certain point, it rises at diminishing
rate. Finally total production starts declining
with every increase in variable input.
Units of Total Average Marginal Stages
labour product product product
0 0 0 0 Stage 1
1 4 4 4 Stage of
increasing
2 10 5 6 returns
3 18 6 8
4 24 6 6
5 28 5.6 4 Stage 2
stage of
6 28 4.6 0 diminishing
returns
7 20 2.8 -8 Stage 3
Stage of
8 16 2 -4 negative
returns
T
A
Total product in
t of TP
Po ion
x
n fle
i
M
x
s1 s2 s3
AP
s1 s2
s3
MP
Units of labour
FIRST STAGE
Total product increases at an increases rate and
later at a diminishing rate.
Average product increases and reaches its
maximum point.
Marginal product initially increases, then starts
declining, but continues to remain above the
average product.
Total Product increases at a diminishing rate.
Average Product continues to fall.
Marginal Product decreases and finally
becomes zero.
Total Product begins to fall.
Average Product continues to fall.
Marginal Product becomes negative.
One factor is variable & other factors are
fixed.
All units of variable factor are fixed
Technology is assumed to be given &
constant.
The Law applies only in the short period.
Factors of production are not perfect
substitute for each other.
The application of the law of variable
proportions can be postponed if improvement
in technology take place.
The operation of the law may be postponed
when the factor of production are perfect
substitute of each other.
The greatest productivity is at the end of
Stage I.
The greatest output is at the end of Stage
II.
Therefore, Stage II is ideal, because there
is a balance between productivity and total
output.
The Law of Variable Proportions states
that while varying only one input, output will
go through three stages:
– Increasing returns
– Diminishing returns (ideal)
– Negative returns