NIT - K

Law of
Variable
Proportion
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 NIT - K

Production
Ordinary language: Creation of material things

Transformation of Input into Output

Economics: Creation of material

Creation of value
commodities as well as non-material
services. But only productive activities which
create value are included in Production
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 NIT - K
Production Function

Technological
relationship that
gives maximum Expression of Q=f(F1, F2, …, Fn )
output the relationship Where, Q = Quantity of output
producible from between inputs F1, F2, …, Fn = Factors or Inputs
various and outputs used to produce the output
combination of
inputs

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 NIT - K

Two Types of Production Function

Short Run Long Run
Production Function Production Function

Some factors are fixed and some There is no distinction between

factors are variable. To produce fixed factors and variable factors.
more output - additional units of All factors are variable.
variable factor have be used.

The Law of Variable Proportion. The Law of Returns to the scale.

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Two Types of Factors or Inputs
Fixed Factor/Inputs
Quantity of input remains the same
irrespective of level of output
produced by the firm.
Quantity input - cannot be changed in the
short run as the level of output changes.
Eg: Land, Building , Machineries, Supply of skilled labour
NIT - K
Variable Factor/ Inputs
Quantity of input varies at different
level of output produced by the firm.
Quantity of inputs - may be changed in the
short run as the level of output changes.
Eg: Raw material , Power, Fuel, Transport, Labour services
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 NIT - K
Law of Variable Proportions
Statement of law
Law of Variable Proportion 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.

Law of Variable Proportion is also known as

‘ Law of Returns’ or ‘ Returns to Variable factor’.
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 Returns to a factor ( Returns to an input) NIT - K

Total Product or Total Physical Product:

Total output or quantity that is produced by a firm using fixed and variable factors at a given point
of time. TP refers to total output at a particular level of employment of a variable input, keeping all
other inputs constant

Marginal Product or Marginal Physical Product:

Change in total product that comes as a result of a one unit increase in the variable input. MP is the
addition made to TP through the employment of an additional unit of a variable input

Marginal Product = (dTP) / (dVI), where TP is total product and VI is variable inputs
MP = TPn – TP (n-1)

Average Product or Average Physical Product:

Total Product produced per unit of variable input employed when fixed inputs are held constant. AP
is the output produced per unit of a variable input.
APP = TPP/ No of units of Variable inputs or factor employed B Sarah
 NIT - K
Assumptions of Law of Variable
Proportions
1.It operates in short run as factors are classified as
variable and fixed factor
All units of
2.The law applies to all fixed factors including land Only 1 variable
3.Under law of variable proportions different units of factor is factors are
variable factor can be combined with fixed factor variable. same
4.This law applies to the field of production only
5.The effect of change in output due to change in
variable factor can be easily determined Factor’s of
6.It is assumed that factors of production become Technique of production
imperfect substitutes of each other beyond a certain production is can be used
limit constant in different
proportions
7.The state of technology is assumed to be constant
during the operation of this law
8.It is assumed all variable factors are equally efficient
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Three Stages of Production NIT - K
Units of Variable Factor Total Product Marginal Product Average Product
(Labour) TPL MPL AP L Stages
Stage I –Increasing Returns to a factor
1 2 2 2
❑AP increases and becomes Maximum
2 6 4 3 I
❑MP increases and becomes Maximum
❑TP increases at an increasing rate 3 12 6 4
4 16 4 4
Stage II-Diminishing Returns to a factor 5 18 2 3.6 II
❖AP diminishes
6 18 0 3
❖MP diminishes and becomes equal to Zero
7 16 -2 2.28 III
❖TP continues to increase at a diminishing
rate & becomes Maximum. 20
18 18
16 16
15
Stage III - Negative Returns to a factor 12

➢ MP becomes negative 10

➢ TP starts diminishing 5
6

➢ AP continues to diminish but will always be 2

grater than Zero 0

1 2 3 4 5 6 7

-5

TPL MPL AP L
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Graph of Law of variable Proportions NIT - K

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 NIT - K
Reasons for Law of Variable Proportion
• Better utilization of Fixed factor
Increasing • Increased Efficiency of Variable Factor
Returns to a factor • Indivisibility of Fixed Factor

Diminishing • Optimum combination of factors

Returns to a factor • Imperfect substitutes

• Limitations of fixed Factor

Negative • Poor coordination between Variable and fixed factor
Returns to a factor • Decrease in Efficiency of Variable Factor
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