Laws of Production – law of variable Proportions
Earlier Economists distinguished three laws of returns; they are diminishing, increasing and constant return, Modern Economist, however, hole that these three laws are really three aspects of the same law, viz. “Law of Variable Proportions”. They represent the three stages of this law.
Law of diminishing returns: Dr. Marshall states the law thus “An increase in the capital and labour applied in the cultivation of land causes in general a less than proportionate increase in the amount of the produce raised, unless it happens to coincide with an improvement in the art of agriculture.
A) Law of increasing returns: As the proportion of one factor in a combination other factors is increased up to a point, the marginal product will increase or the total product will increase with increasing roofs. Here the rate of increase us represented by Marginal Product (MP). MP is defined as change in total product resulting from unit change in input. In agriculture, the initial state of production shows increasing rate. But in non-agricultural sector (industry) generally this law operates.
B) Law of constant returns: The law of constant returns is said to be operated when retunes (MP) remains the same as the business is expanded. The constant return however is observed for a short period.
C) Law of decreasing returns: The law of decreasing returns is the, opposite to the law of increasing returns. Here MP is declining continuously. The total product is increasing but with decreasing rate, and eventually it 1so declines and the MP becomes negative. This law is generally operates in agriculture.