1. Law of Variable Proportion
Subject – Managerial Economics
Submitted to – Prof. Gurpreet Arora
Prepared by- Abbas Miyajiwala

2. CONTENTS:
 Production Function
 Two Types of Production Function
 Two Types of Factor Inputs
 Total, Average and Marginal Product
 Assumption of the Law
 Three Stages of Production
 The Law of Variable Proportion

5. Production Function
Production Function can be represented in form of
mathematical model of equation as
Q= f( a,b,c, ….., etc)
Here, Q is dependent variable which stands for
Quantity of Output and a,b,c are independebt
variables and various Factors of Inputs like Land,
Capital, Labour, etc which are used in production.

6. Two types of Production
function
 Short Run
 Long Run

7. Short Run Production Function
 In this case, the producer will keep
all his fixed factors constant and will
only change a few variable factor
inputs. For example, the Law of
Variable Proportion.

8. Long Run Production Function

In this case, the producer will vary all
his factor inputs both fixed as well as
variable. For example, The Law of
Returns to the scale.

9. Two types of FactorInputs
Fixed Input : Quantity of which remains the
same irrespective of level of output produced
by the firm. For example, Land, Building,
Machineries, etc.
Variable Inputs : Quantity of which varies the
level of output produced by the firm. For
example, Raw Materials, Power, Fuel,
Transport , Labour, etc.

10. Total Product (TP)
 It refers to the total volume of goods
produced during a specified period of
time.
 Total Product(TP) can be raised only
by increasing the quantity of variable
factors employed in production.

11. Average Product (AP)
 Average Product can be known by
dividing total product by the total
number of units of the variable factor.
 TP/Q
 EG- 450/5 = 90

12. Marginal Product (MP)
 It is the output derived from the employment of
one additional unit of variable factor.
 The rate at which the total product increases is
known as marginal product.
 Addition to the total product resulting from a unit
increase in the quantity of the variable factor.

13. Three Stages of Production

14. TOTAL PRODUCT
WORKER
PRODUCT
1st STAGE
Increasing Returns
2ND
STAGE
Decreasing Returns
3RD
STAGE
Negative
Returns
AVEARGE PRODUCT
MARGINAL PRODUCT

15. Stage I (Increasing returns)
 Marginal product is 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 of total Product curve.

16. 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 of total product curve.

17. 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.

18. Conclusions fromthe diagram
 The greatest productivity is at the end of
Stage I.
 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.

19. Assumptions of the Law of
Variable Proportion
 Only one factor is variable while others
are held constant.
 All units of variable factors are
homogeneous.
 There is no change in technology.
 It is possible to vary proportions in which
different inputs are combined.
 The products are measured in physical
units, i.e. in quintals, tonnes etc.

20. The Law of Variable Proportion
“ In a given state of technology and keeping
other productive factors constant, additional
units of a particular variable input will yield
increasing returns of variable factor up to a
point. Eventually a point is reached beyond
which further additions of variable factor yield
diminishing marginal returns per unit of input ”

21. Law of Variable Proportion
 It explains the relationship between factor input
and factor output in physical terms.
 It helps in selecting the most ideal combination of
factor inputs.
 It is the new name for the famous “ Law of
Diminishing Returns” by Classical Economists.

22. THANKYOU