Stages of Production

The behaviour of output in terms of TP, AP and MP on account of increasing variable input is divided into three stages, as shown in the graph below:

Stages of Production

Stage I : Stage of increasing returns

1) Starts from the point of origin and continues till the AP is maximum at point A

2) TP is increasing throughout the first stage.

Till point M(point of infexion) increasing at increasing rate and after point M increasing at decreasing rate till point A.

3) MP rises first, reaches the maximum at point M and then it starts falling, but is positive throughout.

Till point M has the positive slope and after that negative slope.

Law of Variable Proportion

The law of variable proportion states that as more and more units of variable factors are applied to the given quantity of a fixed factor, the total product may increase at an increasing rate initially, but eventually it will increase at a diminishing rate.

Explaining the above law by taking an example:

A farmer is producing wheat, he has land as a fixed factor and labour as a variable factor.

Since land is a fixed factor, he can produce more of wheat only by using more and more of labour.

Will every additional unit of labour employed on the given land yield the same amount of additional output of wheat?

No, it can never happen. If MP (marginal product/additional output) of labour was to remain constant, then a country like India would have produced more and more of wheat using more and more of labour on the same piece of land. It would have never faced the problem of food.

So MP eventually dimnish.This is due to the fact that, there is some ideal ratio of factors of production.