Question

Analysis of short-run production functions forms the subject of matter of ______.

• A. law of variable proportion
• B. law of demand
• C. law of returns to scale
• D. law of marginal utility

Answer 1

Answer: (A)

law of variable proportion

The short run production function is subject to the law of variable proportions. It is only possible for the law of variable proportions to operate under specific conditions. These conditions are only met in the short run.

1. The state of technology is given and remains unchanged

2. It is assumed that some inputs are fixed while others are varied. As it is only then that the factor proportions can be changed.

3. It is assumed that technology is such that it is possible to change the factor proportions. The law will not apply in situations where the factors of production must be used in fixed proportions.

4. It is assumed that all the units of the variable factor are homogeneous and are equally efficient. (eg every worker hired is equally efficient).