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fall. This tendency of the MP to first increase and then fall is called the law of variable proportions or the law of diminishing marginal product. Law of variable proportions say that the marginal product of a factor input initially rises with its employment level. But after reaching a certain level of employment, it starts falling. Why does this happen? In order to understand this, we first define the concept of factor proportions. Factor proportions represent the ratio in which the two inputs are combined to produce output. As we hold one factor fixed and keep increasing the other, the factor proportions change. Initially, as we increase the amount of the variable input, the factor proportions become more and more suitable for the production and marginal product increases. But after a certain level of employment, the production process becomes too crowded with the variable input. Suppose table 3.2 describes the output of a farmer who has 4 hectares of land, and can choose how much labour he wants to use. If he uses only 1 worker, he has too much land for the worker to cultivate alone. As he increases the number of workers, the amount of labour per unit land increases, and each worker adds proportionally more and more to the total output. Marginal product increases in this phase. When the fourth worker is hired, the land begins to get ‘crowded’. Each worker now has insufficient land to work efficiently. So the output added by each additional worker is now proportionally less. The marginal product begins to fall. We can use these observations to describe the general shapes of the TP, MP and AP curves as below. 3.5 S HAPES OF T OTAL P RODUCT , M ARGINAL P RODUCT AND A VERAGE P RODUCT C URVES An increase in the amount of one of the inputs keeping all other inputs constant results in an increase in output. Table 3.2 shows how the total product changes 41 as the amount of labour increases. The total product curve in the input-output P plane is a positively sloped curve. Figure 3.1 shows the shape of the total product o curve for a typical firm. c We measure units of labour o n along the horizontal axis and Output n output along the vertical axis. TP C With L units of labour, the firm L s can at most produce q units of q1 s 1 output. According to the law of variable proportions, the marginal product of an input initially rises and then after a certain level of employment, it starts falling. The MP curve therefore, looks like an inverse O L Labour Fig. 3.1 ‘U’-shaped curve as in figure 3.2. Let us now see what the AP Total Product. This is a total product curve for curve looks like. For the first unit labour. When all other inputs are held constant, it of the variable input, one can shows the different output levels obtainable from different units of labour. easily check that the MP and the Reprint 2026-27