4) Explain the law of variable proportions.

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Introduction
Production function shows the relationship between inputs and the resulting
output using factors of production like land, labour, capital and
entrepreneurship. However, for our simplicity we assume the use of only two
factors of production in the production process.
Law of variable proportion is the theory, which shows the relation between
inputs and output in the short run. Short run refers to the time period where
only one input in the production process can be changed keeping the other input
constant. The possibility of changing only one input results in the varying mix
between the factors of production namely labour and capital from which the
name law of variable proportions is derived.
Law of variable proportions/ law of diminishing returns
The law of variable proportions or law of diminishing returns states that as more
and more of the variable input is combined with the fixed amount of constant
input, the total production may increase at an increasing rate at first, followed by
a constant rate of increment in the second stage and eventually increase at a
decreasing rate. The theory states that one can observe three different stages of
rate of change in total output when a constant factor is combined with more and
more of a variable factor in the production process.
Assumptions
The law of variable proportions is based on the following assumptions:

The state of technology is constant. It ignores the possibility of change in

the state of technology, which might affect the relationship between
inputs and output in the production process.
The individual units of labour used in the production process are
homogeneous in terms of efficiency. All units of labour are equally
efficient in terms of contribution in the production process.
The input prices are given.

Graphical depiction and explanation of the law of variable proportions

The above figure depicts the law of variable proportions that includes the three
stages namely increasing returns, constant returns and diminishing returns
respectively. The figure shows that up to the employment of 5 units of labour
with fixed capital the total production increases at an increasing rate. The reason
for this is the increase in the marginal productivity of labour in the first stage of
production. The marginal product of labour is higher than its average product in
the first stage of production (MPL>APL).

Stage 2 of production is in between the employment of 5 units to 10 units of

labour. In this range, marginal product of labour is less than average product of
labour. Both MPL and APL are decreasing but the MPL decreases at a faster rate
than APL. This stage ends where the MPL touches the X -axis.
Stage 3 of production is where MPL is negative which causes the total product to
decline as more units of the variable input (labour) is added. This represents a
non-feasible stage in the production process.
Reasons behind the occurrence of the three stages
The reason behind the increase in total output at an increasing rate in the first
stage of production is due to the presence of indivisibility of capital. The
indivisibility of capital