Law of Variable Proportion Definition
The law of variable Proportion is considered an important theory in Economics. It is called a law that when the value of one production element is increased, while all other factors are kept unchanged, it will lead to a decrease in the product output of that item.
The law of variable proportion is also known as the Law of Equality. When the dynamic factor becomes higher, it can lead to a negative value of the third party product.
The law of variable proportion can be understood as follows.
If the dynamic factor rises while all other factors are kept constant, the product price will initially increase at an increasing rate, the next level will decrease with the decrease and eventually there will be a decrease in production.
Consideration of the Variable Partial Law
The variable rate law works well under certain circumstances, which will be discussed in the following lines.
Continuous Technological Situation: It is assumed that the state of the art will be the same and with the advancement of technology, production will improve.
Flexible Character Estimates: This assumes that production characteristics vary. The law does not apply, if the production features are fixed.
Homogeneous factor units: This assumes that all units produced are the same in quality, quantity and price. In other words, units have the same nature.
Short Run: This assumes that this rule applies to those systems that run for a short period of time, where it is not possible to change all the included features.
Legal Categories of Flexible Value
The Variable Evaluation Act has three sections, which are discussed below.
Phase One or Phase Growth Row: At this stage, product volume increases with increasing rate. This is due to the fact that the efficiency of the embedded material increases with the addition of flexible inputs to the product.
Second Phase or Decreased Return Phase: In this phase, the product volume increases with a decrease in value until it reaches a high point. Side product and rating is good but it is slowly declining.
Third Phase or Negative Return Phase: In this phase, the product volume decreases and the side product becomes negative.
The Transformal Rates or Restoration Act plays an important role in Product Theory research. In this article, we will consider the definition, definition, categories, significance, and reasons for the application of the Variable Standards Act.
Also, if you get more output using the input unit, then this output may be equal to or less than the output you received in the previous unit.
The Variable Ratings Act worries about how the output changes when increasing the number of units of a variable. Therefore, it refers to the effect of a variable factor-ratio on the output.
In other words, the law indicates the relationship between the units of a variable element and the output value in the short term. This assumes that all other factors do not change. This relationship is also called restitution is a dynamic element.
The law states that to keep certain aspects unchanged, when you increase the dynamic element, the product volume initially increases with increasing rate, then increases with decreasing rate, and eventually begins to decline.
Why is it called the Flexible Standards Act?
As one input changes and all others remain unchanged, the factor or component factor varies. Let's look at an example to better understand:
Suppose you have 10 hectares of land and 1 unit of production. Therefore, the global workforce is 10: 1. Now, if you keep the land unchanged but raise 2 staff units, the average workforce is 5: 1.
So, as you can see, the law analyzes the effects of a change in the factor ratio on the output value and that is why it is called the Flexibility Measurement Act.
The Variable Ratings Act Explained
Let's understand this law with the help of another example:
In this example, the earth is an integral part of work and work is a dynamic element. The table shows the different product values when using different work units in one hectare area that needs to be adjusted.
The following diagram illustrates the law of flexibility. To make a simple presentation, we draw the curve of Total Physical Product (TPP) and Marginal Physical Product (MPP) curves as smooth curves against flexible inputs (workers).
FAQs on Law of Variable Proportions Explained
1. What is the Law of Variable Proportions in economics?
The Law of Variable Proportions is a fundamental principle in economics that explains the relationship between inputs and outputs in the short-run. It states that if we keep increasing the units of one variable input while keeping all other inputs fixed, the total product will initially increase at an increasing rate, then increase at a diminishing rate, and finally start to decline.
2. What are the key assumptions for the Law of Variable Proportions to hold true?
For the Law of Variable Proportions to be applicable, certain conditions or assumptions must be met. As per the CBSE syllabus for 2025-26, these are:
- Constant Technology: The state of technology is assumed to be unchanged. Any improvement in technology would increase the output even with the same inputs.
- Short-Run Production: The law operates only in the short run, where it's possible to change only the variable factors while fixed factors (like machinery or land) remain constant.
- Homogeneous Factor Units: All units of the variable factor (e.g., labour) are assumed to be equally efficient.
- Variable Factor Proportions: It must be possible to alter the ratio of factors, meaning the quantity of the variable factor can be changed while the fixed factor remains the same.
3. How are the three stages of the Law of Variable Proportions shown using a diagram and a schedule?
The three stages are typically illustrated through a production schedule (table) and corresponding curves for Total Product (TP), Average Product (AP), and Marginal Product (MP).
- Stage 1: Increasing Returns to a Factor. In this stage, the Total Product (TP) increases at an increasing rate, and the Marginal Product (MP) curve rises.
- Stage 2: Diminishing Returns to a Factor. Here, the TP continues to increase but at a diminishing rate, eventually reaching its maximum. The MP curve starts to fall but remains positive. This stage ends when MP is zero and TP is at its highest point.
- Stage 3: Negative Returns to a Factor. In this final stage, the TP starts to fall, and the MP becomes negative. This indicates that adding more units of the variable factor actually reduces total output.
A diagram would show the characteristic inverted 'U' shape of the AP and MP curves and the relationship between them and the S-shaped TP curve.
4. Why is the Law of Variable Proportions so important for a producer's decision-making?
The Law of Variable Proportions is crucial for a producer because it helps in identifying the most efficient level of production. By understanding the three stages, a producer can determine the optimal combination of inputs to maximize output and minimise costs. It directly informs how many units of a variable factor (like workers) should be employed with a given amount of fixed factors (like machinery) to achieve production goals without falling into the inefficiency of Stage 1 or the outright losses of Stage 3.
5. What is the core difference between the Law of Variable Proportions and Returns to Scale?
The primary difference lies in the time frame and the variability of inputs. The Law of Variable Proportions is a short-run concept where only one input is varied while others are kept fixed. In contrast, Returns to Scale is a long-run concept where all factors of production are varied simultaneously and in the same proportion. Essentially, the former deals with changing the input ratio, while the latter deals with changing the entire scale of production.
6. Why does a rational producer choose to operate only in the second stage (Diminishing Returns) of production?
A rational producer will always aim to operate in Stage 2 (Diminishing Returns) for two key reasons. Firstly, operating in Stage 1 is inefficient because the marginal product is still rising, which means the fixed factors are being underutilised. Secondly, operating in Stage 3 is irrational because the marginal product is negative, meaning each additional unit of input reduces the total output. Therefore, Stage 2 represents the ideal operational range where output is maximised relative to the inputs used, even though the returns are diminishing.
7. Can you provide a real-world example of the Law of Variable Proportions outside of agriculture?
Certainly. Consider a call centre with a fixed number of computers and phone lines (fixed factors). The number of customer service agents is the variable factor.
- Stage 1: Hiring one or two agents leads to a massive increase in answered calls as the fixed equipment is fully utilised.
- Stage 2: As more agents are hired, they can handle more calls, but they may have to wait for a free computer, so the increase in answered calls per new agent starts to diminish.
- Stage 3: Hiring too many agents creates a chaotic and noisy environment. They get in each other's way, leading to distraction and a decrease in the total number of calls successfully resolved.
