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Explain the Law of Variable Proportions with the help of total product and marginal product curves. |
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Answer» Solution :The law of variable proportions explains the relationship between inputs and outputs in the short run. In the short run, some factors of production (input) are fixed and other factors input are variables. The quantity of output can be increased by increasing the use of variable input. As more and more units of variable input are employed, the proportion between the fixed and variable factors keeps on changing. The output passes through three phases. These three phases are identified with respect to the marginal product. Phase I: TP increases at an increasing rate. In The First phase of production the marginal product rises and reaches its highest point. This is the phase of Increasing Returns to a factor and during this phase, total product increases at an increasing rate. Phase II: TP increases at a diminishing rate. In this phase, Marginal Product is declining, but is positive. Inthis phase total product incrases but at a diminishing rate. This phase ENDS when Marginal Product is ZERO and Total Product is at its maximum level. A producer always operates in this stage. Phase III : TP is falling. In phase of production, Marginal Product is and negative. Here total product STARTS falling.  These phses are shown graphically in diagram. The reasons for the Operation of the Law are: 1. Optimus combination of factors: The phase of incrasing marginal product is due to optimum combination of factors that is required for any given technology, therefore fixed factors get better utilized. 2. However, when more and more units of variable factors are employed to a fixed factor, the fixed factor cannot absorb it and there is overcrowding of variable factors due to which the marginal product falls and becomes negative. This is the phase of diminishing marginal product. |
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