Production And Costs
State the behaviour of marginal product in the law of variable proportions. Explain the causes of this behaviour.
Law of Variable Proportions:
The law of variable proportions state that as the quantity of one factor is increased, keeping the other factors fixed, the marginal product of that factor will eventually decline. This means that up to the use of a certain amount of variable factor, marginal product of the factor may increase and after a certain stage it starts diminishing.
Behaviour of MP
Stages |
Stage's Name |
MP |
Range |
I |
Increasing Returns to a factor |
MP increases till point U |
From 0 to point U |
II |
Diminishing Returns to a factor |
MP falls and touches x-axis |
From U onwards |
III |
Negative Returns to a factor |
MP becomes negative |
Beyond x-axis |
Sponsor Area
How will an increase in number of firms shifts the market supply curve?
Sponsor Area
Sponsor Area