The Law of Variable Proportions & The Law of Diminishing Marginal Products

Objectives –To know about production function, TP AP and MP and various stages of production. –To understand the differences between fixed proportion production function and variable proportion production function. –TO develop the skill to draw diagram for law Variable proportion.

Introduction The Short Run & The Long Run Total Product Average Product Marginal Product

The Short Run & Long Run Short Run A firm cannot vary all the inputs. The factor which cannot be varied is called Fixed Input Other which can be varied is Variable Input Long Run Here all the input factors of production can be varied. Therefore no fixed input.

Total Product Definition :- For variable input the relationship between the variable input and output, keeping all other inputs constant. TP = Production Function q = f(x1; ¯x2)

Average Product Definition:- The output per unit of variable input. AP = TP/x1 = f (x1; ¯x2) / x1

Marginal Product Definition:- The change in output per unit of change in the input when all the other inputs are held constant. When factor 2 is held constant, the marginal product of factor 1 is : MP1 = change in output / change in input = Δq / Δx1

Contents Introduction: - Meaning of production function. Statement of law given by Benham. Assumptions of law. Only one factor input varies others remain constant. All the units of variable inputs are homogeneous. Technology remain the same.

Three stages of production Stage I: - In this stage TP increase at an increasing rate, MP and AP also increase. Therefore this stage is an increasing stage. Stage II: - In the IInd stage TP increases at a deceasing rate, MP falls but positive AP also starts to fall. Therefore know as decreasing stage. The point at which TP start to increase at decreasing rate is known as point of inflexion. Stage III:- TP, AP and MP fall in this stage. MP becomes negative and therefore this stage is known as negative stage. The law can be explained with the help of following table and diagram.

LANDLABOURTPAPMPCONCLU SIONS 1 ACRE IR 1 ACRE 21056IR 1 ACRE31555DR 1 ACRE DR 1 ACRE NR 1 ACRE NR

Conclusions While adding units of an input (labor), the marginal product goes through three stages: Stage I (Increasing returns): marginal product 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.

Conclusions, cont. 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. 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.

Conclusions, cont. 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.

Summary The Law of Variable Proportions states that while varying only one input, output will go through three stages: –Increasing returns –Diminishing returns (ideal) –Negative returns

Methodology Discussion Method. Question answer method. Diagrammatic illustration. Introduction by asking questions and the answer production is a function of various factors of production i.e. Q.x = f (L, L, C, E)

References NCERT Text books. Microeconomics – K.K.Dewett

Assignments –Define Consumption functions. –Distinguish between fixed proportion production function and variable proportion function. –Explain Law of Variable Proportion. OR With the help of a suitable diagram explain the theory of returns to a factor. –Which stage of production, a reasonable producer will select? Why?

Learning Outcome Children are able to understand the concepts like production, variable proportion production function and law of variable proportion. They are able to construct a schedule and draw diagram for law of variable proportion.

Value The lesson will help the children to take rationale decisions in the future regarding the stages of production, if they become producers.

Presented by Mrs. Geetanjali N Nagpal PGT Economics KV Bhandup, Mumbai.