by Sapna (2910073) CSE
LAW OF VARIABLE PROPORTIONS
LAW OF VARIABLE PROPORTIONS
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. This means that upto the use of
a certain amount of variable factor, marginal product of the factor may
increase and after a certain stage it starts diminishing. When the variable
factor becomes relatively abundant, the marginal product may become negative.
Assumptions: The
law of variable proportions holds good under the following conditions:
1. Constant State of Technology: First, the state of technology is assumed to
be given and unchanged. If there is improvement in the technology, then the
marginal product may rise instead of diminishing.
2. Fixed Amount of Other Factors: Secondly, there must be some inputs whose
quantity is kept fixed. It is only in this way that we can alter the factor
proportions and know its effects on output. The law does not apply if all
factors are proportionately varied.
3. Possibility of Varying the Factor proportions: Thirdly, the law is based upon the
possibility of varying the proportions in which the various factors can be
combined to produce a product. The law does not apply if the factors must be
used in fixed proportions to yield a product.
4.
Illustration of the Law: The law of variable proportion is illustrated in the
following table and figure. Suppose there is a given amount of land in which
more and more labour (variable factor) is used to produce wheat.
Units
of Labour
|
Total
Product
|
Marginal
Product
|
Average
Product
|
1
|
2
|
2
|
2
|
2
|
6
|
4
|
3
|
3
|
12
|
6
|
4
|
4
|
16
|
4
|
4
|
5
|
18
|
2
|
3.6
|
6
|
18
|
0
|
3
|
7
|
14
|
-4
|
2
|
8
|
8
|
-6
|
1
|
It can be seen from the table that upto the use of 3 units of
labour, total product increases at an increasing rate and beyond the third unit
total product increases at a diminishing rate. This fact is shown by the
marginal product which is the addition made to Total Product as a result
of increasing the variable factor i.e. labour.
It can be seen from the table that the marginal product of labour
initially rises and beyond the use of three units of labour, it starts
diminishing. The use of six units of labour does not add anything to the total
production of wheat. Hence, the marginal product of labour has fallen to zero.
Beyond the use of six units of labour, total product diminishes and therefore
marginal product of labour becomes negative. Regarding the average product of
labour, it rises up to the use of third unit of labour and beyond that it is
falling throughout.
Three Stages of the Law of Variable Proportions: These stages are illustrated in the
following figure where labour is measured on the X-axis and output on the
Y-axis.
Stage 1. Stage of Increasing Returns: In this stage, total product increases at an
increasing rate up to a point. This is because the efficiency of the fixed
factors increases as additional units of the variable factors are added to it.
In the figure, from the origin to the point F, slope of the total product curve
TP is increasing i.e. the curve TP is concave upwards upto the point F, which
means that the marginal product MP of labour rises. The point F where the total
product stops increasing at an increasing rate and starts increasing at a
diminishing rate is called the point of inflection. Corresponding vertically to
this point of inflection marginal product of labour is maximum, after which it
diminishes. This stage is called the stage of increasing returns because the
average product of the variable factor increases throughout this stage. This
stage ends at the point where the average product curve reaches its highest
point.
Stage 2. Stage of Diminishing Returns: In this stage, total product continues
to increase but at a diminishing rate until it reaches its maximum point H
where the second stage ends. In this stage both the marginal product and
average product of labour are diminishing but are positive. This is because the
fixed factor becomes inadequate relative to the quantity of the variable
factor. At the end of the second stage, i.e., at point M marginal product of
labour is zero which corresponds to the maximum point H of the total product
curve TP. This stage is important because the firm will seek to produce in this
range.
Stage 3. Stage of Negative Returns: In stage 3, total product declines and
therefore the TP curve slopes downward. As a result, marginal product of labour
is negative and the MP curve falls below the X-axis. In this stage the variable
factor (labour) is too much relative to the fixed factor.
Importance and Applicability of the Law of Variable Proportion:
The Law of Variable Proportion has universal applicability in any
branch of production. It forms the basis of a number of doctrines in economics.
The Malthusian theory of population stems from the fact that food supply does
not increase faster than the growth in population because of the operation of
the law of diminishing returns in agriculture.
Ricardo also based his theory of rent on this principle. According
to him rent arises because the operation of the law of diminishing return
forces the application of additional doses of labour and capital on a piece of
land. Similarly the law of diminishing marginal utility and that of diminishing
marginal physical productivity in the theory of distribution are also based on
this theory.
The law is of fundamental importance for understanding the
problems of underdeveloped countries. In such agricultural economies the
pressure of population on land increases with the increase in population. This
leads to declining or even zero or negative marginal productivity of workers.
This explains the operation of the law of diminishing returns in LDCs in its
intensive form. Ragnar Nurkse have suggested ways to make use of these
disguisedly unemployed labour by withdrawing them and putting them in those
occupations where the marginal productivity is positive.
