THE LAW OF VARIABLE PROPORTIONS

 The Law of Variable Proportions or The Law of Diminishing Returns:

In the short run, the input output relations are studied with one variable input (labour) with all other inputs held constant. The laws of production under these conditions are known under various names as the law of variable proportions (as the behaviour of output is studied by changing the proportion in which inputs are combined) the law of returns to a variable input (as any change in output is taken as resulting from the additional variable input) or the law of diminishing returns (as returns eventually diminish).

The law states that as we increase the quantity of one input which is combined with other fixed inputs, the marginal physical productivity of the variable input must eventually decline. In other words, an increase in some inputs relative to other fixed inputs will, in a given state of technology, cause output to increase; but after a point, the extra output resulting from the same addition of extra input will become less and less.

Before discussing this law, if would be appropriate to understand the meaning of total product, average product and marginal product.

Total Product (TP): Total product is the total output resulting from the euorts of all the factors of production combined together at any time. If the inputs of all but one factor are held constant, the total product will vary with the quantity used of the variable factor. Column (1) of Table 1 presents the quantity of variable factor (labour) used along with the factors whose quantity is held constant and column (2) represent the total product at various levels of use of the variable input.

                                                 Table 1: Product Schedule

Quantity of labour	Total Product (TP)	Average Product (AP)	Marginal Product (MP)
(1)	(2)	(3)	(4)
1	100	100.0	100
2	210	105.0	110
3	330	110.0	120
4	440	110.0	110
5	520	104.0	80
6	600	100.0	80
7	670	95.7	70
8	720	90.0	50
9	750	83.3	30
10	750	75.0	0
11	740	67.3	–10

We find that when one unit of labour is employed along with other factors of production, the total product is 100 units. When two units of labour are employed, the total product rises to 210 units. The total product goes on rising as more and more units of labour are employed. With 10 units of labour, the total product rises to 750 units. When 11 units of labour are employed, total product falls to 740 units due to negative returns from the 11 th unit of labour.

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