Law of variable proportion: :
2 Law of variable proportion: It states that in a short-run production function, as the proportion of fixed factor is changed with variable factors, the total output first increases at increasing rate, then increases at constant rate and finally increases at diminishing rate.
The total, average and marginal products for various levels of input: :
3 The total, average and marginal products for various levels of input:
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4 Fertilizers Fertilizers 0 10 20 30 40 50 60 70 -5 0 5 10 15 20 5 10 15 5 10 15 Stage 1 Stage 2 Stage 3 Increasing
returns Constant
returns Diminishing
returns TP MP AP Production Production
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Assumptions of law: :
6 Assumptions of law: One factor is variable while others are fixed.
It is assumed that all the units of the variable factor are homogeneous and are equally efficient.
No change in technology.
It is assumed that technology is such that it is possible to change the factor proportions. The law will not apply in situations where the factors of production must be used in fixed proportions.
Explanation of the law: :
7 Explanation of the law: Causes of Increasing Returns:
Fuller utilization of fixed factors
Division of labour
Causes of Constant Returns:
Disturbing the optimum proportion
Imperfect substitution of factors of production
Causes of Diminishing Returns:
Overcrowding – “too many cooks spoil the broth”
Management problem
Returns to a Factor: :
8 Returns to a Factor: Increasing Returns to a Factor:
Each additional unit of the variable factor adds more and more to the total output, i.e., when marginal product of a factor increases as more of it is used.
Constant Returns to a Factor:
Additional units of a variable factor adds the same amount of output, i.e., when the marginal product of the variable factor is constant.
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9 Diminishing Returns of a Factor:
Each additional unit of a variable factor adds lesser and lesser amount of output, i.e., when marginal product, of a factor falls as more of it is used.
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10 Thank You !