Describe three stages of the law of variable production function

Variable proportion: The law of Variable Proportions occupies an important place in economic theory. This law is also known as Law of Proportionality.

“The law of variable proportion states that if the inputs of one resource is increased by equal increment per unit of time while the inputs of other resources are held constant, total output will increase, but beyond some point the resulting output increases will become smaller and smaller.”

There are three stages of variable proportion:

(i) Increasing returns

(ii) Stages of diminishing returns

(iii) Stages of negative return

(i) First Stage: First stage starts from point ‘O’ and ends up to point F. At point F average product is maximum and is equal to marginal product. In this stage, total product increases initially at increasing rate up to point E. between ‘E’ and ‘F’ it increases at diminishing rate. Similarly marginal product also increases initially and reaches its maximum at point ‘H’. Later on, it begins to diminish and becomes equal to average product at point T. In this stage, marginal product exceeds average product (MP > AP).

(ii) Second Stage: It begins from the point F. In this stage, total product increases at diminishing rate and is at its maximum at point ‘G’ correspondingly marginal product diminishes rapidly and becomes ‘zero’ at point ‘C’. Average product is maximum at point ‘I’ and thereafter it begins to decrease. In this stage, marginal product is less than average product (MP < AP).

(iii) Third Stage: This stage begins beyond point ‘G’. Here total product starts diminishing. Average product also declines. Marginal product turns negative. This happens because marginal product of the labor becomes negative.