Law of variable proportion
Download as PPTX, PDF13 likes5,494 views
The law of variable proportion, introduced by Alfred Marshall, describes how output changes when some factors remain fixed, impacting production based on the quality of these factors. It consists of three stages: increasing returns, diminishing returns, and negative returns, each characterized by specific relationships between total product, average product, and marginal product. Assumptions include the constancy of technology and the efficiency of variable factors, with production being analyzed in the short run.
Law of variable proportion
- 2. INTRODUCTION This law was given by Alfred Marshall in his book principle of economics. It show particular pattern of change in output when some factor remain fixed. Production depend upon factors of production , if factors of production are good, production may increase and vice-versa. Production function show functional relationship between production and factors of production. Q=f(f1, f2, f3.....fn) 2
- 3. The production function has two inputs: Q=F(K,L) Where, Q=production K=fixed factor L= variable factor 3
- 4. TOTAL PRODUCT Total product /total physical product is a total amount of good produced by the producer by using a particular or given amount of labour or input during a particular period of time. TP=SUM MP TP first increase with increasing rate, then increase with decreasing rate become constant and then reduce. 4
- 5. AVERAGE PRODUCT It is the amount of goods produced by per unit of labour. AP=TP/L5
- 6. MARGINAL PRODUCT It is the extra production done by the producer by employing an additional unit of labour. MP= TPn- TPn-1 6
- 7. ASSUMPTION OF LAW OF VARIABLE PROPORTION . It operates in short run, as factors are classified as variable and fixed factor; . This law applies to the field of production only; The effect of change in output due to change in variable factor can be easily determined; The law applies to all fixed factors including land; . The state of technology is assumed to be constant during the operation of this law; It is assumed that all variable factors are equally efficient. 7
- 8. STAGES OF LAW OF VARIABLE PROPORTION 1 stage: It is called law of increasing return. In this stage TP increase with increasing rate and MP increases and reaches maximum. Point lying on TP curve is called point of inflexion. It is that point where TP change it slope and MP is maximum. This stage is called law of increasing return becoz MP is increasing. 8
- 9. 9
- 10. 10
- 11. 2 stage: It is called law of diminishing return. At this stage TP increase with decreasing rate and become constant and maximum and MP reduces become zero. This is know as law of diminishing return because MP is reducing. 11
- 12. 3 stages: This stage is called law of negative return. At this stage TP reduces and MP become negative. 12
- 13. CAUSES OF LAW OF INCREASING RETURNS DUE TO BEST UTILISATION OF FIXED FACTOR- At initial stage supply and contribution of fixed factors is more as compared to variable factor or the fixed factors are not utilised fully so giving its best contribution to increase the production. 13
- 14. EFFICIENCY OF VARIABLE FACTORS DUE TO DIVISION OF LABOUR AND SPECIALISATION variable factors in first stage are working efficiently as there are few labours which makes coordination easy and thus increases the production. 14
- 15. CAUSES OF DECREASING OR NEGATIVE RETURNS OPTIMUM UTILISATION OF FIXED FACTORS OF PRODUCTION In 2 and 3 stage it is assume fixed factors are utilised optimally due to optimum utilisation of fixed factors total production starts reducing because fixed factors have already attributed its fullest to production process and has no more capacity to increase production. 15
- 16. LACK OF COORDINATION AMONG VARIOUS FACTORS In 2 and 3 stage as the number of labour increases the coordination among them reduces and due to this total production increases with decreasing rate and ultimately reduces. As lack of coordination leads to mutual conflicts , strikes, lockout. 16