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Unit-8: Production Function and Law of Production

In economics, this nature is called Law of Variable Proportion. This law represents that the quantity of Notes
product initially increases in an average if the factors of production are changed but later the change in
quantity of product is flat average and at last it goes downward. The traditional economists called this
law as Law of Diminishing Returns. They mainly studied this in terms of farming. According to them if
many workers would work in a fixed region of farm, the return would be less. But actually it is a general
concept, which works on farming, industry, and real estate, etc. types of any production activity. In
modern time, it is called Law of Variable Proportions. It can also be said the Law of Diminishing
Marginal Product, Diminishing Marginal Returns or Diminishing Returns.
According to Leftwitch—“The law of variable proportion states that if an input of one resource is
increased by equal increments per unit of time while the inputs of other resources are held constant,
total output will increase, but beyond some point the resulting output increases will become smaller
and smaller.”
According to Calvo and Waugh, “The law of variable proportion states that if a variable quantity
of one resource is applied to a fixed amount of other inputs, output per unit of variable input will
increase but beyond some point the resulting increases will be less and less, with total output
reaching a maximum before it finally begins to decline.”

Assumptions
The main assumptions of Law of Variable Proportions are following—
(1) One factor of production is variable while others are fixed. (2) The all units of variable factors are
equal or expertise. (3) There is no change in production technique. (4) The factors of production can be
used in various averages. For example, one worker can be used to farm one hectare of land or 4 workers
can be used to farm two hectares of land.

The Returns to Scale is called by change the process of production by changing all factors
or numbers.

8.7 Conditions of Applicability or Causes of Application

The main reasons of Law of Variable Proportions are following—
1. Indivisibility of Factors: The main reason of law of variable proportions is that there are some factors
in production which are undivided. It means there must be use of a unit of fixed input for producing
a given quantity of product. The factor of production like machine is less used in primary stage of
production. The more number of workers are needed to use its full volume. So in primary stage
rather than using the variable inputs, the fixed are used more frequently. By using more number
of variable inputs, the process based division of labour can be possible. This amplifies the work of
variable inputs. The correlation between fixed and variable inputs gets optimum. Thus the marginal
production increases and the total product also increases in increased rate.
2. Change in Factor Ratio: The main reason of law of variable proportion is that one factor is variable
while the other factors are fixed in production. When the variable factors are used with fixed factors
then the average changes in factors are decreased. A product is a result of using all the factors in
production. When a unit of variable input works less than units of fixed inputs, then the marginal
return starts decreasing of variable inputs.
For example, 5 workers work in ten hectares of land. Due to these 5 workers the land is used
maximally for farming. In this condition, the ratio of land and service is 2:1. But if the number of

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