Law of Variable Proportions

Mr. Satal Singh Rana

MBA (First Semester)
 Introduction
It was proposed by economists like Joan Robinson, Alfred Marshell, P.A.
Samuelson.
This law concerns with a short run production function.
In short-run, one factor input is variable and others inputs remains
constant.
In short-run, the volume of output can be changed by changing the
variable factor of production only. This is because the quantity of fixed
factors remains constant due to short span of time.
 Meaning (Law of Variable
Proportions)
• It explains that, When one input (labour) is variable keeping other
constant in short-run, initially, output is increasing at increasing rate, then
after output is increasing at decreasing rate and finally output decline.
• This tendency of production in short run is termed as law of variable
proportion or law of diminishing return.
 Assumptions
• Technology of production remains constant.
• Labour is only variable factor of production
• Producer must be rational.
• All units of labour are homogeneous.
 Concept of TP, AP, MP
• Total Product:- The total output by the use of available inputs on certain time
period.
• Initially, TP is increasing at increasing rate, After some time it increases at decreasing
rate and reaches at maximum point and starts to diminishes when the producer
continuously increase the unit of factor inputs.
• Average product:- It is the total product per unit of variable factor. It is also
known as the ratio between total product and units of input.
• AP curve initially increases at slower rate, reaches its highest point an finally it also
diminishes.
• Marginal Product:- It is defined as the additional output received by the
producer by employing one extra unit of input in existing production
system in given period of time. It is also the ratio between change in total
product and change in units of input.
• MP curve also initially increases at high rate than AP, reaches to its highest point and
starts to decline. MP may zero or even negative.
 Explanation of the law
• This law is explained with the help of following schedule and diagram by
dividing whole process into following three stages
Units of Inputs (Labour) TP AP MP

1 10 10 10

2 30 15 20

3 60 20 30

4 80 20 20

5 95 19 15

6 108 18 13

7 112 16 4

8 112 14 0

9 108 12 -4
 Stage I: Stage of Increasing Returns
• This stage operates due to the following reasons:
• Scarcity of (Labour) variable factors
• Excess supply of fixed assets (Land)
• Division of labour
Stage II: Stage of Diminishing Returns
• This stage operates in production process due to the following reasons:
• Limited supply of fixed factors
• Optimum allocation of resources
• Division of labour
 Stage III: Stage of Negative Returns
• Causes of Operation of this stage are as follows:
• Over population of Variable Factor
• Lack of responsibility
• Scarcity of fixed factors
• Complexity of management
 Why rational producer always wants to
produce in stage second?
• Causes:
• TP is Maximum at this stage
• Optimum allocation of resources
• MP is Positive

• The producer neither wants to stop the production in the first stage nor wants to
move to production in third stage.