Production is the result of a combination of different factors of production, viz. land labour, capital and organization. In order to bring about a change in the level of production, the quantities of the various factors engaged in production have to be changed. An increase in production would be possible only when either the quantity of all factors is increased simultaneously, or when the quantity of some of the factors factors may not be available in the required quantities, it becomes necessary to keep some factor constant and increase the quantity of the other factors, such factors or inputs whose quantity cannot be changed in a given time period (short – run) are called fixed factors or fixed inputs. Those inputs whose quantity can be changed even in the short – run are called variable factors or variable inputs. Therefore, to bring about an increase in the volume of production, the producers would use more and more of the variable factors with the given quantity of the fixed factors.
When in a factor combination, the quantity of a variable factor is increased while the quantity of the fixed factor remains unchanged, the factors proportion itself changes. For example, if in an existing combination of 4 units opf labour (L) and 2 units of capital (K), we now add 2 more units of labour while capital remains the same, the factors’, proportion changes from 2L : 1K. Since, we name ‘variable proportions’ is indicative of the fact that factor proportions have been varied.
According to the Law of Variable Proportions, with successive increase in the quantity of a variable factor combination with the given fixed factors, the marginal and the average product initially increase gradually, then reach a maximum level and ultimately starts declining. Thus happens because one factor cannot be a perfect substitute for the other. Increase in the quantity of lobour (variable factors) on a fixed amount of capital can help us in increasing production only in a limited way. Hence, the marginal and the average product must diminish after a certain range of production.SUBMIT ASSIGNMENT NOW!