Law of Variable Proportions

The law of variable proportions is an integral part of economics, explaining the relationship between input and output in production. The law is more relevant in the short run, where at least one factor of production is fixed, like land or machinery, and labor or materials are variable. 

The economists get to understand the changes in variable inputs affecting the overall process of production and business. 

For businesses, this principle acts as a guide in resource management and making decisions related to productivity. 

 

What is the Law of Variable Proportions? 

The law of variable proportions means that when the quantity of one input is increased, and the quantity is constant, then the resulting increase in output will rapidly increase at first, after which it will start decreasing and soon decline. All this makes the businesses understand how to manage their resources effectively and the impact it will create on the production. 

Once the understanding is achieved, the businesses can solve the challenges, increase efficiency, and cater to economic growth. 

The changes in the law of variable proportions are categorized into three stages: 

 

Stage 1. Increasing Returns 

The results see a proportional increase in the output, because of the addition of variable input. This is because of the under-use of fixed input initially and the sudden usage leads to the improvement in their efficiency. The variable input, in this case, would be the machinery, or labor that was used for the production and was used on a normal scale. The sudden increase in usage leads to the machinery or labor using its full potential thus increasing output. 

 

Stage 2. Diminishing Returns 

While the fixed input remains constant, it starts affecting the efficiency of the variable input, this gradually affects the output, which was at first increasing and is now decreasing at a gradual rate. For example, if on a farm, which is fixed input, the labor is the variable output, thus the land size remains fixed but the laborers are increasing then this will lead to overcrowding, and the efficiency will diminish. 

 

Stage 3. Declining Return 

Adding more variable input to the fixed input will soon decline the output completely and the result will be nil. Overuse of the variable input hinders production dramatically. 

For example, the land is overcrowded with an increasing number of laborers leaving no space for work, thus in the end, there is no production and there is a decline in the output. 

 

Key Features of the Law of Variable Proportions 

The Law of Variable Proportion is true under certain circumstances and the theory explains itself well in terms of economic conditions where to increase the production output, industries always overcrowd the input by adding more variables. 

The key features of the Law of Variable Proportion are: 

• At least one input or factor of production remains fixed. 
• The technology involved in the production remains unchanged. 
• The variable input can be added with a regular increase and is thus divisible. 
• Businesses can use this law and determine the level of input needed for efficiency in production. 
• The overuse of resources can be eliminated. 
• Governing economic policies and analyzing productivity. 

 

Read More: 

• Negotiable Instruments Act 
• Trading and Profit & Loss Account
• Partnership Deed
• What are Equity Shares?

 

Frequently Asked Questions ( FAQs ) 

What are the key takeaways from the law of variable proportions? 

The key takeaways from the law of variable proportions are: 

• Increasing returns 

• Diminishing returns 

• Negative returns 

How is the law of variable proportions important in terms of economics?

The law of variable proportions helps businesses understand how to manage their resources effectively and the impact it will create on production and determine the level of input needed for efficiency in production. 

Is the law of variable proportions applicable in the long run? 

No, the law of variable proportions is not applicable in the long run, because at least one input is fixed, and that determines the production output in the end.