LOGO
CHAPTER. 7
LAW OF VARIABLE
PROPORTIONS
Chapter`s Outlines
Law of Variable Proportions/ Laws of Returns
 History, meaning and concept of Law
 Tabular and Graphical Presentation
Assumptions and Importance of the Law
Laws of Returns
OR
Law of Variable Proportions
THE LAW OF VARIABLE
PROPORTIONS
HISTORY
There were three Laws of Returns in the
history of economic thought up-till Marshall`s
time, however it was later on recognized that
there are not three laws of production. It is only
one law of production which has three phases.
Increasing, Constant and Diminishing. This
general law of production was named as the
Law of variable proportions.
Meaning of Variable Proportion
The law of proportions refers to the
behavior of output as the quantity of one
factor (input) is increased while the other
factors (input) are held constant per unit
of time.
Cont`d
It has been observed that as the input of one
factor is increased, keeping the inputs of other
factors constant, the output increases up to a
certain level, but then it begins to decline. This
relationship between one variable factor and
output, holding other factors constant, is called
Law of variable proportions or Law of
Returns.
Three stages of Laws of Return
Numerical Explanation
Fixed input Variable
(Land,
input
capital)
(labor)
Total
product
(Quantity)
Marginal
product
(Quantity)
Average
Product
(Quantity)
30
1
10
10
10.0
30
2
25
15
12.5
30
3
37
12
12.3
30
4
47
10
11.8
30
5
55
8
11.0
30
6
60
5
10.0
30
7
63
3
9.0
30
8
63
0
7.9
30
9
62
-1
6.8
Graphical Presentation
70
TP
60
50
40
OUTPUT
30
20
10
AP
0
-10
1
2
3
4
5
6
7
8
VARIABLE FACTORS
9
MP
Assumptions of the Law
It is operated in short run, a firm can
not change the quantity of fixed
factor.
It is assumed that the labor is the
only variable factor
The prices are constant
All the units of variable factors are
equally efficient.
There are no change in technique of
production.
Importance of Law
1 It is helpful in understanding clearly the
process of production. It explains the inputs
output relations. We can find out by how
much the total product will increase as a
result of an increase in the inputs.
2 The law tells us that the tendency of
diminishing returns is found in all sectors of
an economy which may be agriculture or
industry.
Importance of Law
3 The law tells us that any increase in the units
of variable factor will lead to increase in the
total product at a diminishing rate.