Introduction:

In economic theory, the law of variable proportion occupies an vital place. It is one of the fundamental laws of production. The law of variable proportion is the new name for the well known” law of Diminishing returns.” of classical economist. According to classical economists there were three separate laws of production but the modern economist are of the view that these laws are not really separate laws but only three faces of general law of variable proportion. The stages of the law of variable proportion are of three kinds which is based on production.

It explains the input output relation in a situation when the output is increased by increasing the quantity of one input and keeping the other inputs constant. The law explains the relationship between inputs and output in the short period. It explains how the output increases when one factor of production increased, keeping the other factors of production constant, in the short period.

 Assumptions of the law:

• It is assumed that one factor unit to be varied and all other factors should kept constant.
• It is based upon the possibility of varying  proportions of factor inputs.
• It is assume that all the units of the variable factors are homogeneous and equally efficient.
• Plant size and capacity should remain constant.
• It assumes that the techniques of production remain constant.

STAGES OF THE LAW

The Law of Variable Proportions, or the Law of Diminishing Marginal Returns, is often described in terms of three distinct stages as more of a variable input is added while keeping other inputs constant. These stages are:

1. Stage of Increasing Returns: In this stage, the marginal product of the variable input is increasing. Each additional unit of the variable input contributes more to total output than the previous unit did. This stage occurs when there are underutilized resources or when the fixed factors of production are not fully utilized. As more of the variable input is added, specialization and division of labor lead to increased efficiency and productivity.
2. Stage of Diminishing Returns: In this stage, the marginal product of the variable input begins to decrease. Although total output continues to increase, it does so at a decreasing rate. This occurs because the fixed factors of production become more intensively utilized relative to the variable input. Additionally, as more units of the variable input are added, factors such as crowding or diminishing returns to specialization start to set in, reducing the efficiency gains.
3. Stage of Negative Returns: In this final stage, the marginal product of the variable input becomes negative. This means that each additional unit of the variable input actually reduces total output. This occurs when the fixed factors of production are overused by the variable input. For example, adding too many workers to a fixed amount of capital in a factory may lead to congestion, inefficiency, and ultimately a decline in output.

REASONS FOR THE STAGES.

The stages of the Law of Variable Proportions, also known as the Law of Diminishing Marginal Returns, can be attributed to several reasons related to the nature of production processes and resource utilization. Here are some of the important reasons for each stage:

1. Stage of Increasing Returns: Underutilization of Fixed Inputs: Initially, when a variable input is added to a fixed set of inputs, there may be underutilization of the fixed inputs. This means that the fixed inputs, such as capital or land, are not fully utilized, and adding more of the variable input allows for better utilization of these fixed inputs.
2. Stage of Diminishing Returns:
   • Fixed Input Constraints: As more of the variable input is added, the fixed inputs become relatively more constrained. This means that there is a limit to how much additional output can be produced by adding more of the variable input while keeping the fixed inputs constant. This leads to diminishing marginal returns as the fixed inputs cannot support unlimited increases in the variable input.
   • Diseconomies of Scale: Beyond a certain point, adding more units of the variable input may lead to inefficiencies and diseconomies of scale. Factors such as overcrowding, coordination problems, and communication difficulties may arise, reducing the overall productivity of the production process.
3. Stage of Negative Returns:
   • Overutilization of Fixed Inputs: In this stage, the fixed inputs become overwhelmed by the variable input. There may be physical limitations or constraints on the fixed inputs that prevent them from accommodating additional units of the variable input. As a result, the marginal product of the variable input becomes negative, leading to a decline in total output.
   • Congestion and Diminished Efficiency: Adding too many units of the variable input can lead to congestion, overcrowding, and inefficiencies in the production process. Workers may get in each other’s way, leading to reduced productivity and output.
4. Specialization and Division of Labor: Adding more units of a variable input often leads to specialization and division of labor, which can increase overall productivity. As workers specialize in specific tasks, they become more efficient at performing those tasks, leading to increasing returns.

CONCLUSION.

These stages explains the dynamic relationship between inputs and outputs in the production process. Understanding these stages helps businesses and policymakers make informed decisions about resource allocation, production techniques, and efficiency improvements. The goal is typically to operate within the stage of diminishing returns, where marginal productivity is still positive but additional inputs are being used efficiently.

also read: explain the Ricardian theory of Rent.