According to the law of variable proportions, which among the following option is correct?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → The marginal product of an input initially rises and then, it starts falling.
The Law of Variable Proportions (also called the Law of Diminishing Marginal Returns) states that as more units of a variable factor (e.g., labour) are employed while keeping other factors (e.g., land, capital) fixed:
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Initially, the marginal product (MP) of the variable input increases due to better utilization of fixed resources and division of labour.
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After a certain point, as more units of the variable input are added, the marginal product starts to decline because the fixed factors become a constraint.
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Eventually, marginal product may become zero or negative.
Hence, according to this law, the marginal product first rises, then falls.