Law of Variable Proportion

LAW OF VARIABLE PROPORTION

The Law of Variable Proportion explains how the output changes when one factor of production is made variable keeping other factors constant. In other words, it refers to the input-output relation when output is increased by varying the quantity of one input.In this law, the unit of labour change by keeping capital constant . As a number of fixed factors,capital is fixed then fixed factor and variable factor can be combined together in varying proportion. So, it is also called " The Law of Proportionality".

STATEMENTOF THE LAW

If we increase the quantity of variable factor keeping a number of fixed factors constant, then the total production initially increase at increasing rate, then the increase at decreasing rate becomes minimum and ultimately, the total production begins to fall. This law is also called "Short Run Production Function". The short run production function can be expressed as:

Q = f(K, L)

Where,

Q = Output

L = Variable input labour

K = Fixed input capital

According to PA Samuelson," An increase in some inputs relative to other fixed inputs will cause an output to income in a given state of technology, but after a point, the extra output resulting from the same auditions of extra inputs will become less and less."

In this law of variable proportion, we can see the changing capital labour ratio.

ASSUMPTIONS

• The technology is fixed.

• Variable inputs are homogeneous.

• Short run production

• At least one factor of production should be fixed.

• Inputs are used in varying production.

SCHEDULE ANDFIGURE

We can further explain this law by the following hypothetical table/schedule.

We can plot the data in graph, we obtain TP, MP and AP curve like as below;

In the above figure TP, AP and MP are shown in Y-axis and unit of labour are shown in the X-axis. In all the curves above, we can see that TP, AP, MP initially increase become maximum and fall. The point to be noted is that MP become negative but TP and APremain positive. When AP₁is in its highest point,MP₁has started to fall but Tp is still increasing. Again when TP reaches its highest point, MP becomes zero and AP start to fall. Finally, when TP starts to fall, MP becomes negative and AP is still falling but it remains positive. The above figure illustrates three stage of short run production process.

STAGE I

Stage I is called the stage of increasing returns. This stage starts from the origin and ends when Ap is maximum.

The main reasons for increasing returns are:

• The proportion of fixed factors is greater than the quality of variable factors.

• When the producer increases the quantity of the factors, output increase due to the complete utilisation of the indivisible factors.

• The efficiency of variable factors goes up as more unit of variable factors are employed.

Stage II

Stage II is also known as the stage of diminishing returns. This stage starts from the point of maximum AP and ends when MP is equal to zero. In this total product (TP) continues to increase at a decreasing rate till it reaches to its maximum value.

Reason for decreasing returns are:

• The proportion of variable factors is greater than the quantity of fixed factors.

• Total output diminishes because there is a limit to the full utilisation of indivisible factors.

• Due to the imperfect substitutability of factors input.

Stage III

Total output falls in this stage. The marginal product accordingly is falling and become negative. The average product continues to fall in this stage as well. It all because managerial complexities.

APPLICATIONOFLAW OF VARIABLE PROPORTION

The Law of Variable Proportion is mostly applied in agriculture due to following reasons:

• Agricultural production is influenced by the natural factors

• Decreasing fertility of soil

• Seasonal dependence of agriculture

• Problem of supervision

Besides the agriculture, the law of variable proportion is also applied on different sectors of an economy like:

• Applicable in river or tank fisheries

• Applicable to mines and brickfields

• Applicable to forest products

• Applicable to construction of building

(Jha, Bhusal and Bista)(Karna, Khanal and Chaulagain)(Khanal, Khatiwada and Thapa)

Bibliography

Jha, P.K., et al. Economics II. Kalimati, Kathmandu: Dreamland Publication, 2011.

Karna, Dr.Surendra Labh, Bhawani Prasad Khanal and Neelam Prasad Chaulagain. Economics. Kathmandu: Jupiter Publisher and Distributors Pvt. Ltd, 2070.

Khanal, Dr. Rajesh Keshar, et al. Economics II. Kathmandu: Januka Publication Pvt. Ltd., 2013.