Explain the phases of changes in total product in law of variable proportions. Also explain the reason behind each phase. Use diagram.
Law of variable proportions explains the behavior of total product mainly in three phases:
Phase I: When more and more variable factors are combined along with the fixed factors, TP increase at an increasing rate.
Phase II: In the second phase, TP increases at a diminishing rate and then reaches its maximum point.
Phase III: In the third phase, TP starts declining and sloping downwards. The following figure illustrates three phases of TP:
REASONS
Phase I: initially the amount of variable factor is small that the fixed factors are underutilized. As the quantity of input increases, specialization can be introduced which leads to increase in efficiency of the variable input and MP increases and TP increases at an increasing rate.
Phase II: there is a pressure on fixed factors as the quantity of variable input increases. This reduces efficiency of the variable input and MP falls and TP increases at a diminishing rate.
Phase III: The quantity of variable input increases so much that the fixed input is now over utilized. As a result, MP becomes negative and TP starts falling.