Law Of Variable Proportions

Production Function
• There exists some relationship between inputs and
outputs of a firm.
• In Economics, such a relationship is known as Production
Function.
• Production Function is an expression of the
technological relation between physical inputs and
output of a good.
• Symbolically : Ox = f (i1,i2,i3………..in)
Where, Ox = Output of the commodity
f = Functional relationship; i1,i2
…..in = Inputs needed for Ox
 Types of Production Function
• The functional relationship between change in
output due to change in inputs is studied in
two phases : Short Run and Long Run.
• Short Run – Refers to a period in which output can
be changed by changing only variable factors.

• Long Run – Refers to a period in which output can be

changed by changing all factors of production.
 Variable Factors and Fixed Factors
• Production is the result of combined efforts of the factors
of production.
• These factors are classified as (i) Variable Factors; (ii) Fixed
Factors.

• Variable Factors – Refers to those factors, which can be

changed in short run. Ex – raw material, casual labour,
power, fuel etc.

• Fixed Factors – Refers to those factors, which cannot be

changed in the short run. Ex – Plant and Machinery,
building, land etc.
 Concept of Product
“Product or output refers to the volume of goods
produced by a firm or an industry during a
specified period of time.”
• The concept of product can be looked at from
three different angles :
(i) Total Product
(ii) Marginal Product
(iii) Average Product
 Law Of Variable Proportions
“Law of Variable Proportions states that as we increase
quantity of only one input keeping other inputs fixed,
total product (TP) initially increases at an increasing
rate, then at a decreasing rate and finally at a negative
rate.”

• In the short run, when one input is variable and all other
inputs are fixed, the firm’s production function exhibits the
Law Of Variable Proportions.
 Assumptions of LVP
1) It operates in short run, as factors are classified as variable
and fixed factor.
2) Under LVP, different units of variable factor can be combined
with fixed factors.
3) This law applies to the field of production only.
4) The effect of change in output due to change in variable
factor can be easily determined.
5) Factors of production become imperfect substitutes of each
other beyond a certain limit.
6) State of technology is assumed to be constant during the
operation of this law.
 Reasons for LVP
1) Increasing Returns (Phase I)
a) Better Utilization of the Fixed Factor
b) Increased Efficiency of Variable Factor
c) Indivisibility of Fixed Factor
2) Diminishing Returns (Phase II)
a) Optimum Combination of Factors
b) Imperfect Substitutes
3) Negative Returns (Phase III)
a) Limitation of Fixed Factor
b) Poor Coordination between VF. and FF.’
c) Decrease in Efficiency of Variable Factor