State the different phases of changes in Total Product and Marginal Product in the Law of Variable Proportions. Also show the same in a single diagram.
The law of variable proportions state that as the quantity of one factor is increased, keeping the other factors fixed, the marginal product of that factor will eventually decline. This means that up to the use of a certain amount of variable factor, marginal product of the factor may increase and after a certain stage it starts diminishing.
Assumptions of Law of Variable Proportions:
1. Constant State of Technology: First, the state of technology is assumed to be given and unchanged. If there is an improvement in the technology, then the marginal product may rise instead of diminishing.
2. Fixed Amount of Other Factors: Secondly, there must be some inputs whose quantity is kept fixed. It is only in this way that we can alter the factor proportions and know its effects on output. The law does not apply if all factors are proportionately varied.
3. Possibility of Varying the Factor proportions: Thirdly, the law is based upon the possibility of varying the proportions in which the various factors can be combined to produce a product. The law does not apply if the factors must be used in fixed proportions to yield a product.
Behaviour of TP
| Stages | Stage Name | TP | Range |
| I | Stage of increasing return |
TP increases at an |
From 0 to point F |
| II | Stage of diminishing return |
Increases at a decreasing |
From F to point H |
| III | Stage of negative return. | TP starts to fall | From H onwards |
The whole production phase can be distinguished into three different production stages.
Ist Stage: Increasing Returns to a Factor
This stages starts from the origin point O and continues till the point of inflexion (F) on the TP curve. During this phase, TP increases at an increasing rate and is also accompanied by rising MP curve. The MP curve attains its maximum point corresponding to the point of inflexion. Throughout this stage, AP continues to rise.
IInd Stage: Diminishing Returns to a Factor
This stage starts from point F and continues till point H on the TP curve. During this stage, the TP increases but at a decreasing rate and attains its maximum point at H, where it remains constant. On the other hand, the MP curve continues to fall and cuts AP from its maximum point S, where MP equals AP. When TP attains its maximum point, corresponding to it, MP becomes zero. AP, in this stage initially rises, attains its maximum point at S and thereafter starts falling
IIIrd Stage: Negative Returns to a Factor
This stage begins from the point H on the TP curve. Throughout this point, TP curve is falling and MP curve is negative. Simultaneously, the AP curve continues to fall and approaches the x-axis (but does not touch it).
Market for a good is in equilibrium. The demand for the good 'increases'. Explain the chain of effects of this change.
Why is the equality between marginal cost and marginal revenue necessary for a firm to be in equilibrium? Is it sufficient to ensure equilibrium? Explain.
Borrowing in government budget is
Revenue deficit
Fiscal deficit
Primary deficit
Primary deficit
Other things remaining unchanged, when in a country the price of foreign currency
rises, national income is (choose the correct alternative)
Likely to rise
Likely to fall
Likely to rise and fall both
Likely to rise and fall both
Name the broad categories of transactions recorded in the 'capital account' of the Balance of Payments Accounts.
OR
Name the broad categories of transactions recorded in the 'current account' of the Balance of Payments Accounts.
