Law of Variable Proportions
The total production (i.e., return) goes on increasing till it reaches the maximum where the third stage starts. The marginal return reaches leh maxunmum thc earliest and starts diminishing the first (j.e., in the firststage), The average return starts diminishing next, i.e., where the second stage begins.This is in keeping with the above table. Obviously, no sensible entrepreneur will ope/ale ill the third
stage where the marginal produc t is zero, unless, ofcourse, the variable factor is free. Economically, the second stage is the significant region where the avera geproduct is greater than the marginal product which is still positive. It can be seen that the total output curve is the steepest where the marginal output is thelargest. The law of diminishing returns is also called the Law of Diminishing Physical Productivity and labour) been combined in the process of production.
The average return (Column 4 in the table on the page 190) shows the amount of the product obtained per unit of labour for the various land-labour ratiosand the total product column (Column 2) shows the total output obtained from that unit of land for the various Iaud-Iabour ratios.In stage 1. as more and more labour is used, the
average product of labour increase s, which reflects theincreasing efficiency of labour. In this stage, the total product increases also Corthis unit of land which shows that the efficiency of land too is increasing. Hence. this stage shows that both land and labour are being efficiently utiLized.The second stage shows decreasing average product and marginal product of labour. But since the total output goes on increasing the marginal product is positive. This stage shows the decreasing efficiency of labour, BUI the efficiency of land continiues to increas because the total return continues to increase. In the third stage, the average product .