Explain the law of variable proportions in terms of the behaviour of total physical product, with the help of a diagram.
Explain the law of variable proportions in terms of the behaviour of total physical product, with the help of a diagram.
When the amount of only one input is increased, while other inputs are held constant, the total physical product initially increases at an increasing rate. This is the first phase of increasing marginal returns to the variable input.
Beyond a point, with increase in the employment of the variable input, total physical product starts increasing at a diminishing rate. This is the second phase of diminishing marginal returns to the variable input.
Eventually, further increase in the variable input causes the total physical product to decline. This is the third phase of negative marginal returns to the variable input. The following schedule and diagram illustrate the point:
Units of landUnits of LabourTPPPhaseFixed input(Variable input)113TPP rises at an increasing rate Phase I12713121416TPP rise a diminshing rate (Phase II)15191621172218221921TPP falls (Phase III)11020
The schedule and diagram show that there are three phases of increases in TPP. In Phase I. TPP increases at an in increasing rate. In phase II, TPP increases at a diminishing rate and in phase III, TPP declines.
Reasons behind different phases:
In Phase I, we get increasing returns to a variable input because greater use of the input makes it possible to utilise fixed indivisible inputs more fully and also to introduce a greater division of labour.
In Phase II, we get diminishing returns to the variable input because in this stage the proportion between the variable input and the fixed input has crossed the optimum proportion between them and a variable input such as labour has less and less fixed inputs to work with.
In Phase III, the variable input becomes too much relative to the fixed inputs which obstructs the production process and therefore results in a fall in total physical product.
When the amount of only one input is increased, while other inputs are held constant, the total physical product initially increases at an increasing rate. This is the first phase of increasing marginal returns to the variable input.
Beyond a point, with increase in the employment of the variable input, total physical product starts increasing at a diminishing rate. This is the second phase of diminishing marginal returns to the variable input.
Eventually, further increase in the variable input causes the total physical product to decline. This is the third phase of negative marginal returns to the variable input. The following schedule and diagram illustrate the point:
Units of landUnits of LabourTPPPhaseFixed input(Variable input)113TPP rises at an increasing rate Phase I12713121416TPP rise a diminshing rate (Phase II)15191621172218221921TPP falls (Phase III)11020
The schedule and diagram show that there are three phases of increases in TPP. In Phase I. TPP increases at an in increasing rate. In phase II, TPP increases at a diminishing rate and in phase III, TPP declines.
Reasons behind different phases:
In Phase I, we get increasing returns to a variable input because greater use of the input makes it possible to utilise fixed indivisible inputs more fully and also to introduce a greater division of labour.
In Phase II, we get diminishing returns to the variable input because in this stage the proportion between the variable input and the fixed input has crossed the optimum proportion between them and a variable input such as labour has less and less fixed inputs to work with.
In Phase III, the variable input becomes too much relative to the fixed inputs which obstructs the production process and therefore results in a fall in total physical product.
