The Law of Variable

Proportions
&
The Law of Diminishing
Marginal Products

Objectives

To know about production function, TP AP

and MP and various stages of
production.
To understand the differences between
fixed proportion production function and
variable proportion production function.
TO develop the skill to draw diagram for
law Variable proportion.

Introduction
The Short Run & The Long Run
Total Product
Average Product
Marginal Product

The Short Run & Long Run

Short Run
A firm cannot vary all the inputs.
The factor which cannot be varied is called
Fixed Input
Other which can be varied is Variable Input

Long Run
Here all the input factors of production can be
varied. Therefore no fixed input.

Total Product
Definition :For variable input the relationship
between the variable input and output,
keeping all other inputs constant.
TP = Production Function
q = f(x1; x2)

Average Product
Definition:The output per unit of variable
input.
AP = TP/x1
= f (x1; x2) / x1

Marginal Product
Definition:The change in output per unit of
change in the input when all the other
inputs are held constant. When factor 2 is
held constant, the marginal product of
factor 1 is :
MP1 = change in output / change in input
= q / x1

Contents
Introduction: - Meaning of production
function.
Statement of law given by Benham.
Assumptions of law.

Only one factor input varies others remain

constant.
All the units of variable inputs are
homogeneous.
Technology remain the same.

Three stages of production

Stage I: In this stage TP increase at an increasing rate, MP
and AP also increase. Therefore this stage is an
increasing stage.
Stage II: In the IInd stage TP increases at a deceasing rate,
MP falls but positive AP also starts to fall. Therefore
know as decreasing stage. The point at which TP start to
increase at decreasing rate is known as point of
inflexion.
Stage III:TP, AP and MP fall in this stage. MP becomes
negative and therefore this stage is known as negative
stage. The law can be explained with the help of
following table and diagram.

LAND

LABOUR

TP

AP

MP

CONCLU
SIONS

1 ACRE

1 ACRE

IR

1 ACRE

10

IR

1 ACRE

15

DR

1 ACRE

17

4.2

DR

1 ACRE

17

3.4

NR

1 ACRE

15

2.7

-2

NR

Conclusions
While adding units of an input (labor), the
marginal product goes through three
stages:
Stage I (Increasing returns): marginal
product increases throughout.
This means that every additional unit
increases productivity as well as total output.
This is shown on the graph by an increasing
slope.

Conclusions, cont.
Stage II (diminishing returns): marginal product
decreases throughout.
This means that every additional unit decreases
productivity, though total output still increases.
This is shown on the graph by a decreasing positive
slope.

Stage III (negative returns): marginal product is

negative throughout.
This means that each additional unit actually
decreases total output.
a waste of money and resources.

This is shown on the graph by a negative slope.

Conclusions, cont.
The greatest output is at the end of Stage
II.
Therefore, Stage II is ideal, because there
is a balance between productivity and total
output.

Summary
The Law of Variable Proportions states
that while varying only one input, output
will go through three stages:
Increasing returns
Diminishing returns (ideal)
Negative returns

Methodology

Discussion Method.
Question answer method.
Diagrammatic illustration.
Introduction by asking questions
and the answer production is a function
of various factors of production i.e. Q.x
= f (L, L, C, E)

References
NCERT Text books.
Microeconomics K.K.Dewett

Assignments

Define Consumption functions.

Distinguish between fixed proportion production
function and variable proportion function.
Explain Law of Variable Proportion.

OR
With the help of a suitable diagram explain
the theory of returns to a factor.

Which stage of production, a reasonable producer

will select? Why?

Learning Outcome
Children are able to understand the
concepts like production, variable
proportion production function and law of
variable proportion. They are able to
construct a schedule and draw diagram for
law of variable proportion.

Value
The lesson will help the children to take
rationale decisions in the future regarding
the stages of production, if they become
producers.

Presented by
Mrs. Geetanjali N Nagpal
PGT Economics
KV Bhandup, Mumbai.