diately, follows: but vary

Suppose
Certainly, that
productionReturns the
production
proportional
will production, When
production
producer
2. AND LAW
concepts
variableThe
prints
firm
it a
ServICes.
defined
Variablechanges.
output
(ii)
(i)
of one,Fixed
others
the
firmn
as depend
technique
Fixed
A
to
contrary,
a
producer Output
Introduction 1.
10
e.k wil management are
amount and is (inputs) and desires
Scale.
usesexclusively relationship
RETURNS OF
the not to when then
of
prinung need Input Variable be of
changes. as
Some Input production as toany
|more
1,000fixed
and
of one
quantity
Some
easy
or output
asmany
of increasedorder
In
producer
a isthis effects
referred result a good
change VARIABLE
Press, the examples
or and Factor kindslnputs
on proportional
factors to between a
books Factor of change to change the
buildm8.
quantity
supply which
of
adjust.
varies.
of
remainsincrease or
changes
there depends
to amount
TO
ol or the as
production. daily.
examples ofProduction:
of fixed
of
cannot
of Thus,
inputs
Factors in
technique
th
constant,e
production Law is in
his
SCALE
PROPORTIONS
Production: The the relationship a on
etc. inputs If which skilled all production of
it inputs amount to amount output change
of
hisso
the
Such be inputsproduce of the
Variable
wants of quantity
may labour. A Production then of factors and output, by
But can variable changed
are fixed
lactors of
production of in
or of
it to
be variable be A plants, some its factors
change Proportions
factors a between the by
willprint
are clarified changed input factors commodity, ofincreasing he of
not inputs in output. production proportion inputs can
called 2,000 major the inputs of in of do
be or of production production is production
input factor the to
possible with in
are equipments, shortproduction or and
tixed books used The amount be
either or
the Law
the raw or run of amounts improved indecreasing oftechnique
making
tactors. to short can the
daily, factor production the iscombination of
increase helpmaterials as (inputs).
of
(output)
Returns
may be referredsame
run buildings, the production amount
Conseque what of adjusted change a
of level
of upon. only of
an as be proportion, to production.
producto inputs and
SOme shall
il ustration. and the is
classified
defined
of Presumingfactorsof to as Factor,factors
a ofone in
le serke quickly, factors his
tactors do?it labour outpu
uses
it (output
Law factort
inputs
as as of the 0 If
 di de ime PeriTi21
moed imputs paperand jbove
dependeprxaminiplntcieren,asged Tcase
(2)
technology not basic
related theLong long ecome ng therePeriod Non-proportional In Long
which The howfactors
relationoutputs) are though
Incertainmaterials they inputs.
producers changes moreShort available
(1) this
may
It
| the
correspond run run; run.
quantity
Period relation output
fixed the
wish
peri o d for be immediproducnoi
represent ately, t
to
is
of all and short types
its
factors
In Period theworth
on
variable no factors between describes and toand wishother in of the
The time
operational(normal hencedistinction and changes the period,
use
reduce output adjustment time of variable
period.
time
or
between some ofhours ot orperiod noting such of
size in of resulting may
workers; to
words, press
to thefactors. whichthere Long various productionShortmainly books,
of production output the expand must factors
specific
a period)
scaleplant as are the tall output of that and as,
of Run: restricted labour,
time between are inputs the variable. production to labour in Run: into the
production Adjustment the output. but short be inputs fixity bulding
combinations
or zero. output
in of firm
involved is whichof quantity noLong variable they accomplished Short two production.
the and the
service or paper,
period associated production fixed or run inputs parts: or
fixed will
is inputsperiod outputs Law In Thus set cannotshort in run
variability in represent
there accordance have
of in is usually
altering factors. inputsbrief, function of with the ctc. Law
assumed between and of of choices in run, is to
time. all are Variable of immediately are It Such
with can variable or the
those the thshort
e
exclusively are defined
may depend Variable
of
fixed factors variable. in are they fixed of fixed
In long the short (technological
shortopen existing run, both inputs factors
Long the befactors changed be
factors
fixedthe to other may with factors
be varied infactors can Proportions.
change run short inputs variable and as
that noted on
Proportions
rn, the period, to they the or
In period discharge use
plant by those
are
constant. can words,
be defined is the others factors
short the run with that less must changes period changes that called of
thus only increased firm, inputs factors
in be in production.
the period
long production is a can threlation e raw and do are fixity and
varies ineasily the long studiedgiven since depends variable
run as firm equipment. a and of
(Again,
in
of scale the long that
be building
materials sovariable. in time
output.
and whose
Returns
long brought period
or all set varied, some between
is by
fixed the
amougshort can interested using in upon variablity
whereas
the of decreased. run, factors period under function of use factors.
supply to
run. be or inputs. which
period),
production
long refers fixed of or Therefore. Economists Scale
indusries. variedabout as i.e. inputs the discharge Similarlymore
plant of
are of th e variable labour Incan
all factors. variable factors Thus one of
run to time law shows in the the 141
factors
in Thus, varied even raw he
it in the and or of
being8
does the the
that
of if if
buu in
142 Economics for Engineers

of Output or Product in Short Run

2. Variation
Inthe short run, more or less units of variable factor are applied to a given quantity offxet
factor to produce different units of the product. There are threeimportant conceptssof produt in
(i) Average Product and (ii) Marginal Product.
(1) Total ()
this connection. Total product
Product (TP): Total product of a variable factor is the maximum output producel

given input of that factor with thefixed factor.

combining
(2) byAverage a (AP): The average product of a variable factor is simply the total
Product
product of the factor divided by the total units of the variable factor. It measures the
factor. Symbolically
average output per unit of the
TP
AP =
L

product; L= Total units of variable F

(Here, AP = Average product; TP =Total
which is assumed to be labour.)
variable facto.
The average product is an indicator of productivity of the
factor is the change in toal
(3) Marginal Product (MP): Marginal product of a variable of the variable factor. In other
product resulting from the use of one more or one less unit
variable factor
words marginal product measures the rate at which output changes as a
changes. Symbolically,
ATP
MP =
AL

Or

MP, = TP,-TP,-1

(Here, MP =Marginal product of labour;ATP= Change in total product; AL= Changein

variable factor which is assumed to be labour; MP, = Marginal product of 'n' units;TP, =
Total product of 'n' units; TP,- = Total product of n-1 units.)
The concepts of totalproduct (TP), marginalproduct (MP) and average product have been
clarified by Table 1.
Table 1. TP, AP and MP
Units of Land Units of Total Product Average
Marginal
(Hectares) Labour (TP) Product (MP) Product (AP)
0
2 2 2
2 2.5
9 4
4 12
 (iv) (n) 21
haveMOre (1) Relation
()
positive. Theequal.are The The
been Marginal
1
product 1 1 1
details
average average average
between
en
about
product
ad product
the product product Average
ship
in 8 7 6
he can
decreases increases
er be isProduct
at
positive;
ween its
in when
maximum when and
he
Marginal
gTotal marginal
ZeroOr marginal 14 15 15 14
Law of
duct, when
Product
product Variable
negative,
product
of both
inal
e Proportions
is
but marginal
is greater (-)1 1
less
uctaverage
than and
than
product
and average Returns
product average
age
and 2.1 to
product. 1.7 2.5 2.8
product. Scale
is average
uct alwavs

143
 roportions. then states
can land, Economics,
Diminishing in
land measuring
proportion the 2land the varying
between theof
the comes
application
the
equi-proportionately
beand that per new and number of
applied proportion proportion operation. intoThe In
thought aslabourer labour. short
the this between fixedand of
It Returns. proportion hectares.
onewhich in period the
can to tendency Land
proportions
of previously,of labour
between factor is variable
any it
also variable
as and factors
They You is when
production
associated
be of a lawfactor
factors is
finally and fixedincreased
called derived labour grow the
calledthere now altered.
factors is of
less is there land factor variable output
changed, tomatoes to
the
particularly than Law will and fixedthe a
operation. will while
it will and given
Lawproportionately. by also land of
the of be
be proportions a
applying labour all
of Variable
total be will :2. l on other andquantity product
inishing with 1
It production hectare a be If Supposing
it there
change 2:2, the with is variable
is
agriculture.Proportions. mo afactors of is
now more The variable issought
oflandnumber in the thatlaw fixed
and in other help
usually classical at remainfactors
Marginal
more first total per factor. factors, to
words, of which be
But increases labourer. labOurer.
labourers of
a are
economists output productionofincreased
constant,
called labour The tactors
two of
it SuppOSing predicts the law
Product is law if
a more there of
general
the at On is
to of increased then variable by
Law a than
called different
variable account were of
by
or fxed ACCordinglythe you
the used.are Wadditionway
Diminisn3princpie proportionaet. production i. proportionconser
ofacreage it 2
the proportun hectares have pronori
Variab rates. of to
Law chang: 2 land a
u o o In then
of
145 of ofI| increased
resource of increase
butheyond
wnll quantity
outpul it of stages
stage
of
argument before
maximum
a hectares of
kinds
law.
Prof.
Scale beginning
three rate
H.R,
mosl is (iii)
to smaller'"
total variable
constant, input
will ofthe
rate
decreasing
Returnsfollowing 2 and
of example, formulated Three
Stages inCreasing the
fenlure returns, Description marks
one butand aif point
some
reaching TP
starts
declining
and of smaller of
variable
that a
thecomnmon inpul 1. at isMP stage
negative
Proportions are
held for etc. have Fig.
at
MP
decreases
increases
connection states output diminishing MP
increases
increases
fixed. proportions,
labourers, Stage
III:
if
the become Stage
II: second
and
economists Stage
I:
a words unil
proportions Production
just thatother
resources with
total are
2 TP TP
Variable per Table of
thisis states will oulput factors technique
of
production. end
4
homogeneous. of
increases less, with
different stage stage;
of
In proportions variable proportions,
to Marginal
Product
other of
Law Returns. inputs, land reference -1
really
a inpuls
of and (ii) Stages 2 3 4 3 2 second
of be
output less assunptions:
all in of returns,
lawother used
hectares ofthe
not
Diminishing variable whileare Three
theresulting variablewith
is while
"Theof will factor be increasing Product beginning
0 amount
increases variable 2. Total
discussed
of Waugh, the can2 12 14 15 15 14
noting, lawtime main variable or Production of Table 2 5 9
the in productionlaw
as "Theof point fixed labourer;
resulting is
following change the
Returns
simply
worth unit and factors theof are
Leftwitch, a " decline. stage Units
of
marks
some abplied
to the to These Labour
per Calvo
or is prprocesses.
oducionbeyond the
incremenis Assumptions
5.e1 the of no of 1 of reference
with Stages
(i) 2 3 4 5 7 stage
Varian
iniAccor
Marginal. DefA tionpding res0Urce
to
of to
0ne begins
aS
has
of
law One
unitsis Factors
There
land
viz. returns.
production,
first
stage.]
equalincrease, the
In finally The
All ThreeWith
Unit (hectares)
of
of
End third
i) (ii) (ii) (iv) negative Land
by 5.2 1 INote:
of
146 Economics for Engineers

in the first TP Curve

Itis dear romTable 2 that TOTAL
PRODUCT
variable
stage of prodution, as the input of tends to
Point of Inflexion

fator Inreases. marginal produt

InTease. Acodingh, TP inorcases at an Tp
inoeasing rate. In the second stage, inreasc
followed by
In the input of a iable fador is Stage. I Stage: II
derrase in marginal produd. Accordingl. Stage. l
rate. I the
TP nTcases a the deeasing
third stage. inrease in the number of variable
fator renders marginal produt as negative,
and total product starts declining. YA Increasing Diminishing
In Fig. 1, MP tends to rise till OL units
MARGINAL
PRODUCT
Returns Returns Negat
Returnsive
L
of the variable factor are used. It is a stage of Stage: Stage: I|
increasing returns. Corresponding to Stage: ll
incrcasing MP TPtends torise at an increasing E MP Curve
Tate (0 ’ ). Between L and K units of the
variable factor, MP tends to fall. This
coTresponds to the stage of diminishing
returns. In this stage,TP increases only at the
diminishing rate ( ’ T). When the variable KMP
factor is employed beyond K units, marginal UNITS OF THE VARIABLE FACTOR
product (MP) becomes negative, implying a Fig. 1
fall in TP This is a stage of negative returns
(bevond T on the TP curve).
lI s
Referring to Table 2, stage Iis operative till MP (marginal product of labour) is 4. Stage
negative.
operative till MP is zero. Stage III isoperative when MP becomes
" 5.3 Significance of the Stages of Production
Willyou as a producer stop in stage Iof production?
variable factor (other
No, because in stage I, employment of every additional unit of the
things remaining constant) is giving more and more marginaloutput (rising MP).
Will you as a producer enter in stage IIIof production?
No, because in stage IlI, employment of every additional unit of the variable factor (other
things remaining constant) is giving less and less of total output (MP is negative). In fact, it is toos
to accept a declinein total output (and hence a decline in total income/revenue) even when the co
is rising on account of additional employment of the variable factor.
Technicall,
This brings ustothe conclusion that you, as aproducer will stop only in stage II llof
Stage
it means that aproducer will find his equilibrium(where he maximises his profits) only in
production when MP is declining but is still positive.