Law of Variable Proportions
Explain the law of variable proportions
The law of variable proportions:
The law of variable proportions was propounded by economists like Joan Robinson, Marshall, Samuelson, etc. This is also known as the law of diminishing returns. This law concerns with short-run production function. This law examines the production with one-factor variable keeping the quantities of other factors fixed. When the quantity of one factor is changed, keeping the quantities of other factors constant, the proportion between the variable factor and the fixed factor is changed. Therefore, it is known as the law of variable proportions. Under this law, we study the effects on output with the variation in factor proportions.
According to this law, as the quantity of a variable factor is increased by equal amount keeping the quantities of other factors constant, initially total product increases at an increasing rate, but after a point increases at a diminishing rate, becomes maximum, and finally declines
Assumptions of the Law
The law of variable proportion is based on the following assumptions:
- The state of technology is assumed to be given or unchanged
- At least, one factor of production should be fixed.
- There must be possibility of varying the proportion of factors of production.
On the basis of the above-mentioned assumptions, the law of variable proportions can be explained with the help of the given table and figure.
|Land (Ld) |
|Units of Labour|
(TP) (In Units)
|Average Product |
(AP) (In Units)
(MP) (In Units)
In the above table, land is a fixed factor and labour is a variable factor. As the units of labour are increased keeping land fixed, TP first increases at an increasing rate up to the 3rd unit of labour and then increases at a decreasing rate upto the 5th unit of labour. It is maximum at the 5th unit of labour. It becomes stable at the 6th unit of labour. Thereafter, it decreases.
MP first increases then become maximum at the 3rd unit of labour and thereafter declines. At the 6h unit of labour, it is zero and thereafter it is negative.
AP also first increases, then becomes maximum at the 3rd unit of labour, and at the 4th unit of labour, it is stable. After this, AP is decreasing. At the 4th unit of labour, AP and MP are equal.
This law is presented diagrammatically in the given figure.
Stages of the Law
The law of variable proportions can be divided into three stages. These three stages are as follows:
- Stage I (Stage of Increasing Returns): In this stage, total product increases at an increasing rate upto a certain point and then increases but at the decreasing rate. In the above figure, TP is increasing at the increasing rate up to point A and then has started increasing at the diminishing rate. MP is increasing up to point G and then it is decreasing. AP is increasing up to the point H and at point E, it is stable. This stage ends at the point E where AP and MP are equal, i.e. AP = MP.
- Stage II (Stage of Decreasing Returns): This stage begins from point B of TP. In this stage, total product continues to increase at the diminishing rate until it reaches point C. It remains stable at the point D, where the second stage ends. In this stage, AP is continuously decreasing. MP is also continuously decreasing and it is zero at the point F.
- Stage III (Stage of Negative Returns): This stage begins from the point D. In this stage, TP is declining, AP is also declining and MP is negative or below X-axis. AP never becomes zero and negative.