Explain the Law of Variable Proportion with an illustration.
Law of Variable Proportion states that as more and more of the variable factor input is combined with the fixed factor input, eventually a point will be reached where the marginal product of the variable factor input starts declining.
Let us consider the above given table. As more and more units of factor input are used, MP tends to rise till 2 units of factor input are used. Here, the total product increases at an increasing rate which is called increasing returns to the factor input. But when the 3rd unit of factor input is used, the diminishing returns sets in where the MP starts decreasing and TP increases at a decreasing rate. Diminishing MP reduces to zero. Total output is maximum when marginal output is zero. When MP is negative, TP starts declining as from 34 to 10 when 9th unit is employed.
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