question_answer

What does the Law of Variable Proportions show? State the behaviour of marginal product according to this law.

Or

Explain how changes in price of inputs influence the supply of a product.

Answer:

The law of variable proportions shows how the product will be affected if one factor is variable and other is fixed. The law explains if the units of a variable factor are increased the total product will also increase. This law can be divided into three stages. The behaviour of MP curve will be as shown in the diagram.

(i) In the first stage, the firm starts from the point of original to the point where MP curve is maximum. According to diagram this stage is from point of origin to point B. In this stage MP curve rises and reaches the maximum.

(ii) In the second stage, MP curve ranges from point B (where it is maximum) to point C (where it is zero) i.e., MP decreases but is positive.

(iii) The third stage goes from point C and goes below X-axis. In this phase, MP decrease and gets negative. Therefore a firm always operates in the second stage.

Or

The increase in. the cost of input or factors of production leads to an increase In. the cost of production, which affects the supply of a commodity.

Example: When the prices of factors increases, the cost of production also increases. In the result, the supply of commodity will be less at a given price.

Similarly, when the cost of inputs and the factors of production fall the cost falls. The cost of the product will not be changed. In this case producer will get profit. This induces producers to supply more.