Law of Variable Proportion: Meaning, Phases, Assumption & Example

The law of variable proportion-or diminishing returns-is related to the input-output relationship in the production process when input is varied. An addition to the variable input will then yield increasing marginal returns, eventually giving way to the decreasing marginal returns, which may become negative. The law of variable proportion is referred to as the law that states the quantity of one factor of production is increased while keeping other factors constant will ultimately result in the decline of the marginal product of the factor. When the variable factor is increased, keeping other factors constant first, the total product will increase at an increasing rate. Then the total product will increase at a diminishing rate. Then, there will be a decline in the production rate. The law of variable proportion is generally used in the short-run production function. Under this function, one factor varies while keeping others the same. The law of variable proportion is also known as the law of proportionality.

The law of a Variable Proportion is a topic that holds utmost importance in the UGC NET exam. It is a part of the commerce paper 2 syllabus of UGC NET Commerce exam. You can check the commerce syllabus.

In this article, we will learn about the following:

• Law of Variable Proportion – Introduction
• What is the Law of Variable Proportion?
• Assumptions of Law of Variable Proportion
• Stages of the Law of Variable Proportion
• Relationship Between TP, MP, and AP in the Law of Variable Proportion

Click Here to Download UGC NET Paper 1 Important Questions PDF

Law of Variable Proportion- Introduction

The Law of Variable Proportion is what occurs when we alter the quantity of one thing and hold everything constant. Suppose a farmer hires more laborers to a small land area. Initially, the farm will yield more crops. But after some time, hiring more workers will not benefit and can even decrease the productivity. This is due to the fact that there is not enough space or equipment for all people to work effectively. The law shows us that putting more of one factor will bring lower results rather than higher results.

Fig: law of variable proportion

The Law of Variable Proportion describes the way output (production) is affected if one factor of production is increased and the rest remain unchanged. This occurs in agriculture, factories, and businesses when additional labor, machines, or materials are added to a constant space or resource.

For instance, let us consider a small farm where land is not variable but people are added on by the farmer continuously. The initial production increases as more people work, but after a point, increasing the number of workers will no longer increase production as much due to lack of space and equipment for everyone. Production may even go down with still more workers added because they get into one another's way.

This legislation is significant since it illustrates that an excess of one thing does not necessarily produce better outcomes and that companies have to be economical with resources.

Assumptions of Law of Variable Proportion

The Law of Variable Proportion holds on the basis of some conditions that are required to be fulfilled so that the law holds. These conditions are referred to as assumptions. These assumptions explain the change in production as we raise one factor and leave others unchanged.

Single Changing Factor

The law takes an assumption that a single factor of production (such as workers or machines) is being raised, but all other factors stay constant. For instance, if a farmer increases the number of workers but does not change the land, the law will hold. If everything changes simultaneously, it is difficult to observe how each variable influences production. This assists in examining the impact of only one change at a time. It also simplifies the observation of how an increase in one factor influences the overall output.

Technology Remains the Same

Among the key assumptions of law of variable proportion, constant technology ensures accurate output comparisons. The law takes for granted that the technology employed for production remains constant throughout the process. When more efficient machines or tools are added, production could rise for another reason and not because of the addition of more workers or material. For instance, if a farmer begins using a tractor instead of a bullock cart, the production will rise due to technology, not additional workers. Keeping the technology constant aids in observing the actual impact of raising just one factor. This ensures that the output changes only due to the additional input.

Short-Term Production

The law only holds true in the short run, which is a time frame in which some aspects cannot be altered. For instance, a factory cannot rapidly increase its area or construct a larger workshop, but it can increase the number of workers. If the duration is long enough, the business can alter everything, and the law might not function in the same manner. This assumption is useful in grasping changes in production when alterations are restricted. It also explains why companies have to plan resources carefully.

Resources Are Used Efficiently

The law presumes that all inputs are being utilized in the right way without wastage. If the workers are idle or equipment is not functioning efficiently, then production will not rise even if more workers are employed. For instance, if a farmer employs additional workers but they are not efficient, the output will not increase as anticipated. This presumption aids in comprehending how additional input influences production when everything is utilized in a smart way. It also shows the need for being careful when handling resources. 

The Quality of the Variable Factor Remains the Same

The law presumes that the additional factor being introduced (such as workers) has the same quality as before. If the new workers are of a lower skill level or are less experienced, they might not add as much to production. For instance, suppose that a factory employs untrained laborers. Such laborers might produce fewer products than trained laborers. This assumption guarantees that if the production varies, then it is because of the number of employees, not because of the skill levels. It also makes comparing the influence of hiring more workers on a fair basis.These five assumptions of law of variable proportion form the foundation for understanding production behavior.

Stages of the Law of Variable Proportion

There are three stages which describe the law of variable proportion. These three stages Depict the variable conditions and factors positioning with their impacts. These three stages of the law of variable proportion are discussed below.

Stage 1

Stage 1 of the stages of law of variable proportion reflects increasing returns due to better utilization of resources. Under stage 1, the TPP increases at an increasing rate, and the MPP also increases. Due to the increase in the units of variable factor, MPP increases. This stage is also called the stage of increasing returns. Generally, in stage one, the producer does not operate. The marginal product increases in this stage. So that the producer can employ more units and make the proper utilization of resources.

Stage 2

Here the TPP increases at a diminishing rate. Though it increases at a diminishing rate, It stays positive. The MPP decreases due to the increase in the number of units of variables. This stage is called the stage of diminishing Returns. The producers most likely prefer to operate on the stage.

Stage 3

Here the TPP starts declining but stays positive, while MPP decreases and becomes negative. This stage is also called the stage of negative returns. Producers avoid operating in stage 1 as well as in stage 3. In this stage, there is a decline in the total product. The marginal product also becomes negative. In stage 3, the cost is higher, and the revenue decreases. This leads to a reduction in profits.

Relationship Between TP, MP, and AP in the Law of Variable Proportion

The Law of Variable Proportions here-under The behavior of the variables-total product (TP), marginal product (MP), and average product (AP)-as the variable input like labour increases keeping all other factors constant is necessary to understand the Law of Variable Proportion.The behavior of TP, MP, and AP also helps us identify which of the three stages of law of variable proportion we are in.

Units of Input (Labour)	Total Product (TP)	Marginal Product (MP)	Average Product (AP)
1	10	10	10.00
2	25	15	12.50
3	36	11	12.00
4	44	8	11.00
5	45	1	9.00
6	43	-2	7.17

Stage 1: Increasing Returns to the Variable Factor

• TP increases at an increasing rate.
• MP rises from 10 to 15.
• AP also increases (from 10 to 12.5).
• This stage reflects better utilization of fixed resources and specialization of labour.

Example: From unit 1 to unit 2, TP goes from 10 to 25 — an increase of 15 units, so MP = 15. Since workers complement each other in the early stages, output rises sharply.

Stage 2: Diminishing Returns to the Variable Factor

• TP continues to rise but at a diminishing rate (36 → 44 → 45).
• MP falls (11 → 8 → 1).
• AP also begins to decline (12 → 11 → 9).
• This is the most efficient and rational stage of production where firms typically operate.

Example: At 5 units of labour, TP is 45, but MP has fallen to 1. AP has also decreased to 9. This means each additional worker adds less to output, but total production is still increasing.

Stage 3: Negative Returns to the Variable Factor

• TP starts to decline (from 45 to 43).
• MP becomes negative (-2).
• AP continues to fall (to 7.17).
• Too many workers are causing overcrowding or inefficiency.

Example: With 6 workers, TP drops to 43, and MP = -2, indicating that the sixth worker is actually reducing total output.

Conclusion

The law of variable proportion is a very important concept in the economy. This helps us understand the relationship between input and output in a very clear manner. The proper utilization of resources can be done through the law of the variable proportion. The law of variable proportion concludes that if the producer increases the units as are variable factor initially, the total product increases at an increasing rate. Then the total product increases but at a decreasing rate. In the last stage, the product decreases but remains positive. In all three stages, the producer aspires to operate in stage 2. In this stage, the proper utilization of resources is possible. The law of variable proportion is a very crucial concept which helps the producer to produce at an optimum level.

To read more topics for the UGC-NET examination, download the Testbook App now.

Major Takeaways for UGC NET Aspirants Law of Variable Proportion - Introduction: This law of variable proportion explains how output varies when only one of the input factors is changed, while others are kept constant. For instance, labor can be the variable input and land or capital can be the constant input. It is of great concern in explaining why increasing an input into a production process does not guarantee greater production. What is the Sweet Law of Variable Proportion? This law depicts the three-branch operations of production conditions brought about when a variable input is added to fixed inputs. First, output increases rapidly; then output is incrementally increased, and possibly at last even a decrease is induced. Assumptions of the Law of Variable Proportion: The law of variable proportions applies under certain assumptions such as having a constant technology, resource-efficient use, and only one variable input changing with all others remaining fixed; thus isolating the effect produced by changing only one factor of production. Stages of the Law of Variable Proportion : There are three stages: increasing returns, diminishing returns, and negative returns. Producers aspire to operate in Stage 2 whereby inputs are fully utilized to produce maximum output without waste. Relationship Between TP, MP, and AP in the Law of Variable Proportion : Understanding the way Total Product (TP), Marginal Product (MP), and Average Product (AP) behave helps indicate which stage of production is under the firm. These metrics represent visually the states of activity and signal when to stop adding inputs.

Law of Variable Proportion Previous Year Questions

Consider the following statements about the law of variable proportions:

Options. 

1. Input ratio remains unchanged.
2. Ultimately the marginal and average products of variable input becomes negative.
3. Effect of technological change is visible on output.

Choose the correct answer from the code given below:

1. i and ii are correct
2. Only ii is correct
3. ii and iii are correct
4. None of the above statement is correct

Ans. D. None of the above statement is correct