Question
State the behaviour of marginal product in the law of variable proportions. Explain the causes of this behaviour.
Solution
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 |
The main reason behind this behaviour of MP is Law of Diminishing Marginal Product. According to the Law of Diminishing Marginal Product, if the employment of variable factor is kept on increasing along with the constant level of the fixed factor, then finally a point will be reached where after, the marginal product of the variable factor will start falling and after this point the marginal product of any additional variable factor can be zero and even be negative.
