economics

Question

What are the different phases in Law of Variable Proportions kin terms of a product?

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Studies Lakshita 2 years 1 Answer 157 views Bronze 0

Answer ( 1 )

  1. The Law of Variable Proportions or Returns to a Factor plays an important role in the study of the Theory of Production. In this article, we will look at the meaning, explanation, stages, significance, and reasons behind the operation of the Law of Variable Proportions.
    The law has three stages as explained below:

    Stage I – The TPP increases at an increasing rate and the MPP increases too. The MPP increases with an increase in the units of the variable factor. Therefore, it is also called the stage of increasing returns. In this example, the Stage I of the law runs up to three units of labour (between the points O and L).
    Stage II – The TPP continues to increase but at a diminishing rate. However, the increase is positive. Further, the MPP decreases with an increase in the number of units of the variable factor. Hence, it is called the stage of diminishing returns. In this example, Stage II runs between four to six units of labour (between the points L and M). This stage reaches a point where TPP is maximum (18 in the above example) and MPP becomes zero (point R).
    Stage III – Now, the TPP starts declining, MPP decreases and becomes negative. Therefore, it is called the stage of negative returns. In this example, Stage III runs between seven to eight units of labour (from the point M onwards).

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