discuss law of variable proportion. 18 marks
Answers
Answer:
The law states that keeping other factors constant, when you increase the variable factor, then the total product initially increases at an increases rate, then increases at a diminishing rate, and eventually starts declining.
Explanation:
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Answer:
Law of Variable Proportion is regarded as an important theory in Economics. It is referred to as the law which states that when the quantity of one factor of production is increased, while keeping all other factors constant, it will result in the decline of the marginal product of that factor.
Law of variable proportion is also known as the Law of Proportionality. When the variable factor becomes more, it can lead to negative value of the marginal product.
The law of variable proportion can be understood in the following way.
When variable factor is increased while keeping all other factors constant, the total product will increase initially at an increasing rate, next it will be increasing at a diminishing rate and eventually there will be decline in the rate of production.
Stages of Law of Variable Proportion
Stages of Law of Variable ProportionThe Law of Variable proportions has three stages, which are discussed below.
First Stage or Stage of Increasing returns: In this stage, the total product increases at an increasing rate. This happens because the efficiency of the fixed factors increases with addition of variable inputs to the product.
Second Stage or Stage of Diminishing Returns: In this stage, the total product increases at a diminishing rate until it reaches the maximum point. The marginal and average product are positive but diminishing gradually.
Third Stage or Stage of Negative Returns: In this stage, the total product declines and the marginal product becomes negative.
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