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CA Foundation · Business Economics · Theory of Production and Cost

In a short-run production function, the Law of Variable Proportions is said to operate. Which condition is essential for this law to hold?

The Law of Variable Proportions requires that at least one factor stays fixed while another is varied, with technology constant. This changes the proportion between factors. Raising all inputs together relates to returns to scale, and the law also assumes homogeneous units of the variable factor.

  1. AAt least one factor is held fixed while the quantity of another factor is varied, with technology unchangedCorrect
  2. BAll factors are increased in the same proportion simultaneously
  3. CTechnology improves steadily as more of the variable factor is employed
  4. DThe units of the variable factor are of different quality

Explanation

The law applies when one or more factors are fixed and only the variable factor is changed, so factor proportions change. Technology is assumed constant and units of the variable factor are assumed homogeneous. Changing all inputs equally is the subject of returns to scale, not this law.

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