LAW OF VARIABLE

PROPORTION
•THE LAW OF VARIABLE PROPORTIONS STATES THAT AS THE. QUANTITY OF ONE FACTOR IS
INCREASED, KEEPING THE OTHER. FACTORS FIXED, THE MARGINAL PRODUCT OF THAT
FACTOR WILL. EVENTUALLY DECLINE.
 CONCEPT OF LAW OF VARIABLE PROPORTION

• LAW OF VARIABLE PROPORTION IS CONSIST OF THE RELATIONSHIP

BETWEEN THE TOTAL UTILITY AND MARGINAL UTILITY
TOTAL UTILITY (TU)
TOTAL PRODUCT REFERS TO THE TOTAL OF GOODS PRODUCED BY A FIRM
DURING A GIVEN PERIOD OF TIME.
MARGINAL UTILITY (MU)
MARGINAL PRODUCT IS REFERS TO THE TOTAL PRODUCT WHEN ONE
MORE UNIT OF VARIABLE FACTOR IS EMPLOYED
STATEMENT OF VARIABLE PROPORTION

1PHASE- TP AT INCREASING RATE

MP ALSO INCREASE

II PHASE – TP RISES AT DECREASING RATE

MP ALSO DECREASE BUT POSITIVE

III PHASE – WHEN TP FALLS

MP BECOME NEGATIVE

ASSUMPTIONS-
1.IT OPERATE IN SHORT RUN, AS FACTORS UNITS
CLASSIFIED
ASSUMPTIONS (CONTINUED)

• 2. The law applies to all fixed factors including land;

• 3. Under law of variable proportions, different units of variable factor can be combined with fixed
factor;

• 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;

• 6. It is assumed that, factors of production become imperfect substitutes of each other beyond a certain
limit;

• 7. The state of technology is assumed to be constant during the operation of this law;

• 8. It is assumed that all variable factors are equally efficient.

EXPLAINATION USING DIAGRAM
IN THE ABOVE DIAGRAM IT IS DEVIDED INTO 3 PHASES
• Ist phase- When TP increase at increasing rate
MP also increase
• 2nd phase- When TP decrease at decreasing rate
MP also decrease but positive(2nd phase is benificial)
• 3rd phase- When TP falls.
MP become negitive