The Law of Variable Proportions Definition
The law of variable proportions shows a particular pattern of changes in output and is an explanation of short run production function where some factors remain unchanged. In the history of economics till the time of Alfred Marshall, there were three laws of return, increasing, constant and diminishing laws of return. Much time was wasted in this issue. However, it was later on realized that there are three stages of production i.e. increasing, diminishing and negative returns. In this law the whole production process is divided into three stages.
Statement of the Law
"As the quantity of one variable input in a production process is Increased, with quantities of other Inputs remaining fixed, marginal physical product firstly increases, then after reaching a maximum, starts decreasing and finally becomes negative".
Assumptions of the Law
The law is based on certain assumptions some of which are outlined below
- Land is considered as the fixed factor of production
- Labour is assumed as a variable factor of production.
- All workers involved in production are equally efficient.
- There is short-run in the economy during which fixed factors of-production cannot be changed.
The law can be explained with the help of the following schedule and diagram.
In schedule given above more and more workers are added to the fixed amount of land. In the beginning the addition of worker have added more to the total production (TP) of land and up to the 2nd worker the marginal production (MP) is increasing which means that every additional worker is adding more to the TP than the previous one: This stage is called law of increasing returns The MP obtained from the use of 3rd, 4th, 5th 6th and 7th is less than the first 2 workers thus from this point law of diminishing returns starts operating. Finally at 8th worker MP is 0 and becomes negative from 9th worker.
Here i will explain law of variable proportions with diagram
The diagram (Fig-C) shows that the total production (TP) is increased at an increasing rate and this part represents the law of increasing marginal returns and against point A the marginal product is maximum. From point D to point E the MP curve is falling which shows the stage of diminishing returns. From point B to E the third stage is shown which means that after the increase in the quantity of the variable factor the MP.
Importance of the Law
- The law helps in understanding the process of production
- It tells us that the tendency of diminishing returns is found in all sectors of the economy
- The law helps the producers to how to react during different periods of time