Law of Variable Proportions
The law states that if all other factors are fixed and one input is varied in
the short run, the total output will increase at an increasing rate at first
instance, be constant at a pointand then eventually decrease. Margina lproduct
will become negative at last.
According to G.Stigler, “As equal increments of one input are added, the inputs
of other productive services being held constant, beyond a certain point, the
resulting increments of product will decrease, i.e., the marginal product will
diminish”.
Assumptions
The Law of Variable Proportions is based on the following
assumptions.
Only one factor is variable while others are held constant.
All units of the variable factor are homogeneous.
The product is measured in physical units.
There is no change in the state of technology.
There is no change in the price of the product.
Total Product (TP)
It refers to the total amount of commodity produced by the
combination of all inputs in a given period of time.
Summation of marginal products, i.e.
TP = ΣMP
where, TP= Total Product, MP= Marginal
Product
Average Product (AP)
It is the result of the total product divided by the total units of the
input employed.
In other words, it refers to the output per unit of the input.
Mathematically, AP = TP/N
Where,
AP= Average Product
TP= Total Product
N= Total units of inputs employed
Marginal Product (MP)
It is the addition or the increment made to the total product when
one more unit of the variable input is employed. In other words, it is
the ratio of the change in the total product to the change in the units
of the input. It is expressed as
MP=ΔTP/ΔN
where,
MP = Marginal Product ΔTP = Change in total product ΔN = Change in
units of input
It is also expressed as
MP = TP (n) – TP (n-1)
Where,
MP = Marginal Product TP(n) = Total product of employing nth
unit of a factor
TP(n-1) = Total product of employing the previous unit of a factor, that
is, (n-1)th unit of a factor.
The Law of Variable Proportions is explained with the help of the
following schedule and diagram:
In table 3.1, units of variable factor (labour) are employed along with
other fixed factors
of production. The table illustrates that there
three stages of production. Though total product increases steadily at
first instant, constant at the maximum point and then diminishes, it is
always positive for ever. While total product increases, marginal
product increases up to a point and then decreases. Total product
increases up to the point where the marginal product is zero. When
total product tends to diminish marginal product becomes negative.
In diagram 3.1, the number of workers is measured on X axis while TP L,
APL and MPL
are denoted on Y axis. The diagram explains the three stages of
production as given in the above table.
Stage I
In the first stage MPL increases up to third labourer and it is higher than
the average product, so that total product is increasing at an
increasing rate. The tendency of total product to increase at an
increasing rate stops at the point A and it begins to increase at a
decreasing rate. This point is known as ‘Point of Inflexion’.
Stage II
In the second stage, MPL decreases up to sixth unit of labour where MP L
curve intersects the X-axis. At fourth unit of labor MP L = APL. After this,
MPL curve is lower than the APL. TPL increases at a decreasing rate.
Stage III
Third stage of production shows that the sixth unit of labour is marked
by negativeMPL, the APL continues to fall but remains positive. After the
sixth unit, TPL declines with the employment of more units of variable
factor, labour.
Relationship among Total, Average and Marginal Products
Stage Total Product Marginal Product Average
s Product
Stage I Initially it At the beginning it At the first
increases at an increases, then reaches instant it
increasing rate a maximum and starts to increases, then
and then decrease attains
increases at a maximum
deceasing rate
Stage It continues to It continues to It is equal to MP
II increase diminish and and then begins
at a diminishing becomes equal to zero to
rate and reaches diminish
maximum.
Stage It diminishes It becomes negative It continues to
III diminish but
always
greater than zero
(positive)
