Model Paper 2 — Economics STD 11 Commerce — Question

Law of Variable Proportions states that as we increase the quantity of input, keeping other inputs fixed, the total product initially increases at an increasing rate, then at a decreasing rate and finally at a negative rate.

Variable factor (Labour)	TP	MP	Phase
1 2	10 30	10 20	1st
3 4 5	45 52 52	15 7 0	2nd
6	48	-4	3rd

Law of variable proportion can be discussed in three phases:
i. Increasing Returns to a Factor: In the first phase, every additional variable factor adds more and more to the total output. It means TP increases at an increasing rate and MP of each variable factor rises.
ii. Diminishing Returns to a Factor: In the second phase, every additional variable factor adds a lesser amount of output. It means TP increases at a diminishing rate and MP falls with increase invariable factor.
iii. Negative Returns to a Factor: In the third phase the employment of additional variable factor causes TP to decline. MP now becomes negative.