Law of Variable Proportions Web Version 1

8/17/2019 Law of Variable Proportions Web Version 1

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The Law of VariableProportions

&The Law of Diminishing

Marginal Products


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Objectives

– To know about production function, TP APand MP and arious stages ofproduction!

– To understand the differences betweenfi"ed proportion production function andariable proportion production function!

– T# deelop the skill to draw diagram forlaw Variable proportion!


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$ntroduction

% The hort 'un & The Long 'un

% Total Product

% Aerage Product

% Marginal Product


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The hort 'un & Long 'un

hort 'un

A firm cannot ar( all the inputs!

The factor which cannot be aried is called)i"ed $nput

#ther which can be aried is Variable $nput

Long 'un

*ere all the input factors of production can bearied! Therefore no fi"ed input!


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Total Product

Definition +

)or ariable input the relationship

between the ariable input and output,keeping all other inputs constant!

TP - Production )unction . - f(x1; ¯x2)


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Marginal Product

Definition+

The change in output per unit ofchange in the input when all the otherinputs are held constant! 6hen factor 4 isheld constant, the marginal product offactor 0 is +

MP0 - change in output / change in input

- 7. / 7"0


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8ontents

% $ntroduction+ Meaning of productionfunction!

% tatement of law gien b( 9enham!

% Assumptions of law!% #nl( one factor input aries others remain

constant!

% All the units of ariable inputs arehomogeneous!% Technolog( remain the same!


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Three stages of productionStage I:

$n this stage TP increase at an increasing rate, MPand AP also increase! Therefore this stage is anincreasing stage!

Stage II: - $n the $$nd stage TP increases at a deceasing rate,MP falls but positie AP also starts to fall! Thereforeknow as decreasing stage! The point at which TP start toincrease at decreasing rate is known as point ofinflexion!

Stage III:TP, AP and MP fall in this stage! MP becomes

negatie and therefore this stage is known as negatie

stage! The law can be e"plained with the help offollowing table and diagram!


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LAND LABOUR TP AP MP ONLUSIONS

1 ACRE 0 0 0 0

1 ACRE 1 4 4 4 IR

1 ACRE 2 10 5 6 IR

1 ACRE 3 15 5 5 DR

1 ACRE 4 17 4.2 2 DR

1 ACRE 5 17 3.4 0 NR

1 ACRE 6 15 2.7 -2 NR


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8onclusions

% 6hile adding units of an input 1labor5, themarginal product goes through threestages+

% tage $ 1$ncreasing returns5+ marginalproduct increases throughout! – This means that eer( additional unit

increases productiit( as well as total output! – This is shown on the graph b( an increasing

slope!


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8onclusions, cont!

% tage $$ 1diminishing returns5+ marginal productdecreases throughout! – This means that eer( additional unit decreases

productiit(, though total output still increases!

– This is shown on the graph b( a decreasing positieslope!

% tage $$$ 1negatie returns5+ marginal product isnegatie throughout!

– This means that each additional unit actuall(decreases total output!% a waste of mone( and resources!

– This is shown on the graph b( a negatie slope!


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8onclusions, cont!

% The greatest output is at the end of tage$$!

% Therefore, tage $$ is ideal, because thereis a balance between productiit( and totaloutput!


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ummar(

% The Law of Variable Proportions statesthat while ar(ing onl( one input, outputwill go through three stages+ – $ncreasing returns

– Diminishing returns 1ideal5

– :egatie returns


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Met!o"olog#

% Discussion Method!

% ;uestion answer method!

% Diagrammatic illustration!% $ntroduction b( asking .uestions

and the answer production is a function

of arious factors of production i!e! ;!"- f 1L, L, 8,


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Refe$ences

% :8


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Assign%ents

– Define 8onsumption functions!

– Distinguish between fi"ed proportion productionfunction and ariable proportion function!

– 6h(>


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Lea$ning O&tco%e

% 8hildren are able to understand theconcepts like production, ariableproportion production function and law of

ariable proportion! The( are able toconstruct a schedule and draw diagram forlaw of ariable proportion!


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'al&e

The lesson will help the children to takerationale decisions in the future regarding

the stages of production, if the( becomeproducers(


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Presented b(

Mrs! ?eetan@ali : :agpal

P?T

Documents

Law of Variable Proportions Web Version 1