The law of variable proportion - Skyline E-Learning

The Law of Variable Proportion is an important concept in economics that describes the relationship between the inputs used to produce a good or service and the resulting output. This law, also known as the Law of Diminishing Returns, suggests that as more of a variable input is added to a fixed input, the marginal product of the variable input will eventually decrease.

In this blog post, we will explore the concept of the Law of Variable Proportion, its applications in economics, and the factors that influence it.

Understanding the Law of Variable Proportion

The Law of Variable Proportion is a concept in economics that explains how changes in the proportion of inputs used to produce a good or service affect the output. Specifically, the law states that as the proportion of one input (the variable input) is increased while the other input(s) remains constant (the fixed input), the marginal product of the variable input will eventually diminish.

For example, consider a farm that produces corn. The farmer can use a fixed amount of land to grow corn, but can vary the amount of fertilizer used on that land. Initially, increasing the amount of fertilizer will increase the yield of corn. However, at some point, adding more fertilizer will not result in a proportional increase in yield. In fact, adding too much fertilizer can actually harm the crop. This is an example of the Law of Variable Proportion in action.

Applications of the Law of Variable Proportion

The Law of Variable Proportion has many applications in economics, particularly in the study of production and cost. Understanding this law is crucial for businesses that want to optimize their production process and minimize their costs.

One of the most important applications of the Law of Variable Proportion is in determining the optimal level of production. In order to maximize profits, businesses must produce at the point where marginal cost equals marginal revenue. The Law of Variable Proportion helps businesses to identify the point at which additional inputs are no longer cost-effective, and therefore should not be used.

The Law of Variable Proportion also plays a role in determining the optimal level of employment. As more workers are added to a production process, the marginal product of labor will eventually decrease. This means that there is an optimal level of employment beyond which additional workers will not be as productive. Understanding this law can help businesses to avoid overstaffing and reduce labor costs.

Factors that Influence the Law of Variable Proportion

The Law of Variable Proportion is influenced by several factors, including the nature of the inputs, the technology used, and the size of the production process.

One of the most important factors that influence the Law of Variable Proportion is the nature of the inputs. For example, the marginal product of labour may decrease more quickly than the marginal product of capital, depending on the specific production process. Similarly, the type and quality of the variable input can also affect the marginal product.

The technology used in production can also influence the Law of Variable Proportion. New technologies may allow for more efficient use of inputs, which can result in a slower decline in the marginal product of the variable input. Additionally, the size of the production process can also affect the Law of Variable Proportion. Larger production processes may be able to use inputs more efficiently, resulting in a slower decline in the marginal product of the variable input.

Examples of the Law of Variable Proportion

There are many real-world examples of the Law of Variable Proportion in action. One of the most well-known examples is the relationship between labour and output. As more workers are added to a production process, the marginal product of labour will eventually decrease. This means that there is an optimal level of employment beyond which additional workers will not be as productive.

Another example of the Law of Variable Proportion can be seen in the production of crops. Adding more fertilizer to a field can initially increase

. The law of variable proportion, also known as the law of diminishing marginal productivity states that if one factor of production is continuously increased by a constant amount,

while other factors are held fixed in quantity, then, after a certain point, the resulting increases in output will begin to diminish.

In other words, the law of variable proportions holds that if increasing quantities of one factor are combined with a fixed supply of others in production, a point is reached from which each extra variable factor added yields less and less addition to the total output.

That is as more and more of the variable factor is combined with a fixed quantity of other factors, ultimately, its average product and marginal product will begin to decrease.

This can be explained by stating that the fall-off in extra additions to output does occur because each extra dose of the variable factor must now work with decreasing proportions of the fixed factors.

It must be understood that this fall-off does not happen abruptly. As the variable input increased, the more natural outcome is that the increments to the product will initially increase, then remain constant, and finally, begin to decrease, thereby giving rise to:

1. Increasing returns, 2 returns, and 3. Diminishing returns

Increasing

returns
increasing returns experienced at stage 1. As a more variable factor, labour in this case, are used, total product begins to increase, the average increases to its maximum, while the product attains a maximum and then

Constant returns

From table 22.3, constant returns are experienced at stage 2. The total product rises to its peak, the average product begins, and the marginal product reduces towards zero.

Diminishing returns

diminishing experienced in stage 3. At this stage total and average product fall towards zero

while the marginal product becomes having fallen below the horizontal axis, if shown graphically.

it becomes very clear that constant returns is merely a transitory stage being encountered as output shifts from the still highly temporary stage of increasing returns to the more dominant and diminishing returns.

Variable factor labour	Fixed factor land	TP	AP TP/L	MP	Type of returns
1 2 3	10 10 10	30 120 240	30 60 80	30 90 120	Increasing
4 5	10 10	320 400	80 80	80 80	Constant
6 7 8	10 10 10	420 420 400	70 60 50	20 0 20	Decreasing or diminishing

Importance of the law of variable proportions

The law of variable proportions is useful in the wing ways As business houses are assumed to be out to raise their profits to a maximum, it helps the entrepreneur to determine the optimal combination of factors to achieve this objective.

It becomes very useful in fixing a worker’s wages since a worker ought to be paid according to his marginal productivity.

A firm grasp of the law of variable proportions is essential to understand short-run cost curves and hence, the short-run theory of the firm.

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