Law of Variable Proportions

PRODUCTION ANALYSIS:The Law of Variable Proportion

SCOPEPRODUCTION POSSIBILITY ANALYSIS. LAW OF VARIABLE PROPORTION. LAW OF RETURN TO SCALE.

OUTPUTPRODUCTIONPRODUCTION ANALYSISINPUTPRODUCTION: CONVERSION OR TRANSFORMATION OF INPUTS TO OUTPUT.PROCESS ADDS VALUE TO INPUTS TO SATISFY NEEDS/ WANTS.

OUTPUTPRODUCTION ANALYSISPRODUCTIONPRODUCTION ANALYSISINPUTPRODUCTION ANALYSIS: LAWS GOVERNING RELATIONSHIP BETWEEN INPUTS & OUTPUTS.LAWS HELP DECIDE OPTIMAL COMBINATION OF INPUTS (RESOURCES) FOR DESIRED RESULTS AT LOWEST COST.

LAWS

LAW OF VARIABLE PROPORTIONS.LAW OF RETURN TO SCALE.

PRODUCTION ANALYSIS

HOW TOTAL & MARGINAL OUTPUT IS AFFECTED BY CHANGE IN ONE INPUT KEEPING OTHER INPUTS CONSTATNT.

AS PROPORTION OF ONE FACTOR IN A COMBINATION OF FACTORS IS INCREASED, MARGINAL & AVERAGE OUTPUTS WILL INCREASE THEN AFTER A POINT, FIRST MARGINAL AND THEN AVERAGE OUTPUT WILL DIMINISH.

APPLICABLE IN SHORT RUN.LAW OF VARIABLE PROPORTIONS

EFFECT ON OUTPUT: THREE STAGES

INCREASING RETURNS MARGINAL RETURN RISESCONSTANT RETURNS MARGINAL RETURN FALLSDIMINISHING RETURNS MARGINAL RETURN BECOMES NEGATIVE

LAW OF VARIABLE PROPORTIONS

LAW OF VARIABLE PROPORTIONSPRODUCTION OF AMN SHELLS PER MACHINE PER HOUR IN ORD FACTORY

NO OF WORKERSTOTAL PRODUCTIONAVERAGE PRODUCTIONMARGINAL PRODUCTIONSTAGES OF PRODUCTION18882201012336121644812125551186601057608.608567- 4

LAW OF VARIABLE PROPORTIONSPRODUCTION OF AMN SHELLS PER MACHINE PER HOUR IN ORD FACTORY

NO OF WORKERSTOTAL PRODUCTIONAVERAGE PRODUCTIONMARGINAL PRODUCTIONSTAGES OF PRODUCTION1888I2201012I3361216I4481212II555118II660105II7608.60III8567- 4III

LAW OF VARIABLE PROPORTIONS

LABOUR TPMP/APSTAGE I II III12APMPBAMP > APAP > MPINCREASING RETURN: INCREASE IN OUTPUT MORE THAN PROPORTIONATE TO INCREASE IN INPUTOPTIMAL POINT IN EMPLOYMENT OF FACTORCONSTANT RETRUN: INCREASE IN OUTPUT PROPORTIONATE TO INCREASE IN INPUTDIMNISHING RETURN: INCREASE IN OUTPUT LESS THAN PROPORTIONATE TO INCREASE IN INPUT

EXAMPLES OF LAW OF VARIABLE PROPORTIONS NO OF AIRCRAFT TAKING PART IN BOMBING MISSION AND DESTRUCTION SOUGHT.IF MORE AND MORE LABORERS ARE ADDED TO HARVEST A WHEAT FIELD AT SOME POINT EACH ADDITIONAL LABORER WILL ADD RELATIVELY LESS OUTPUT THAN HIS PREDECESSOR DID SIMPLY BECAUSE HE HAS LESS AND LESS OF THE FIXED AMOUNT OF LAND TO WORK WITH IN SHORT, IN SITUATIONS WHERE ONE FACTOR IS INCREASED, WHILE OTHERS REMAIN CONSTANT.

ASSUMPTIONSNO CHANGE IN TECHNOLOGY IMPROVEMENT IN TECHNOLOGY BOUND TO RAISE OUTPUT.

ONLY ONE FACTOR VARIABLE, REST CONSTANT.LAW OF VARIABLE PROPORTIONS

LAW OF RETURN TO SCALEDEALS WITH EFFECT ON OUTPUT, WHEN ALL INPUTS CHANGE SIMULTANEOUSLY IN SAME RATIO - DOUBLE, TREBLE ETC

LARGER THE SCALE OF ACTIVITIES LOWER GENERALLY THE COST OF ACHIEVING OUTPUT.

ECONOMIES OF SCALE ARISE FROM LARGE SCALE ACTIVITIES.

LAW OF RETURN TO SCALEECONOMIES RESULT FROM EFFICIENT USE OF RESOURCES FULLER UTILISATION OF EXISITING CAPACITY R&D

ECONOMIES OF SCALETRUE ONLY UP TO A POINT.THEN DIS-ECONOMIES SETS IN.THREE STAGES INCREASING RETURNS MARGINAL RETURN RISESCONSTANT RETURNS MARGINAL RETURN CONSTANTDIMINISHING RETURNS MARGINAL RETURN DIMNISHESLAW OF RETURN TO SCALE

RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

FACTORS OF PRODN EMPTOTAL PRODUCTS/RETURNSMARGINAL PRODUCT/RETURNSSTAGE OF RETURN TO SCALE

RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

FACTORS OF PRODN EMPTOTAL PRODUCTS/RETURNSMARGINAL PRODUCT/RETURNSSTAGE OF RETURN TO SCALE1 WORKER+3 hrs

RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

FACTORS OF PRODN EMPTOTAL PRODUCTS/RETURNSMARGINAL PRODUCT/RETURNSSTAGE OF RETURN TO SCALE1 WORKER+3 hrs2 WORKERS + 6 hrs

RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

FACTORS OF PRODN EMPTOTAL PRODUCTS/RETURNSMARGINAL PRODUCT/RETURNSSTAGE OF RETURN TO SCALE1 WORKER+3 hrs2 WORKERS + 6 hrs

3 WORKERS + 9hrs4 WORKERS+ 12 hrs5 WORKERS +15 hrs6 WORKERS + 18 hrs.

7 WORKERS + 21 hrs8 WORKERS + 24 hrs9 WORKERS + 27 hrs

RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

FACTORS OF PRODN EMPTOTAL PRODUCTS/RETURNSMARGINAL PRODUCT/RETURNSSTAGE OF RETURN TO SCALE1 WORKER+3 hrs2002 WORKERS + 6 hrs5003 WORKERS + 9hrs9004 WORKERS+ 12 hrs14005 WORKERS +15 hrs19006 WORKERS + 18 hrs.24007 WORKERS + 21 hrs28008 WORKERS + 24 hrs31009 WORKERS + 27 hrs3200

RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

FACTORS OF PRODN EMPTOTAL PRODUCTS/RETURNSMARGINAL PRODUCT/RETURNSSTAGE OF RETURN TO SCALE1 WORKER+3 hrs2002002 WORKERS + 6 hrs5003003 WORKERS + 9hrs9004004 WORKERS+ 12 hrs14005005 WORKERS +15 hrs19005006 WORKERS + 18 hrs.24005007 WORKERS + 21 hrs28004008 WORKERS + 24 hrs31003009 WORKERS + 27 hrs3200100

RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

FACTORS OF PRODN EMPTOTAL PRODUCTS/RETURNSMARGINAL PRODUCT/RETURNSSTAGE OF RETURN TO SCALE1 WORKER+3 hrs200200STAGE OF INCREASING RETURNS2 WORKERS + 6 hrs5003003 WORKERS + 9hrs9004004 WORKERS+ 12 hrs14005005 WORKERS +15 hrs1900500STAGE OF CONSTANT RETURNS6 WORKERS + 18 hrs.24005007 WORKERS + 21 hrs2800400STAGE OF DECREASING RETURNS8 WORKERS + 24 hrs31003009 WORKERS + 27 hrs3200100

STAGE 1STAGE 3STAGE 2 1 2 3 4 5 6 7 8 9 10 11MARGINALOUTPUTNO OF COMPOSITE UNITS OF FACTORS OF PRODUCTION4321065MARGINAL PRODUCT CURVEOPTIMAL POINT IN EMPLOYMENT OF FACTORSLAW OF RETURN TO SCALE

DIS-ECONOMIES START OPERATING AS SCALE OF ACTIVITY IS RAISED BEYOND A POINT.OPTIMUM MIX OF INPUTS TO ACHIEVE THE RESULT VARIES WITH THE DEGREE OF RESULT DESIRED.APPLICABLE IN LONG RUN.LAW OF RETURN TO SCALE