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CMA Foundation · Fundamentals of Business Economics and Management · Theory of Production

In the Law of Variable Proportions, a firm increases one variable input (labour) while keeping all other inputs (land, machinery) fixed. Which statement correctly describes the assumption on which this law operates?

The Law of Variable Proportions assumes technology is constant and at least one factor is fixed while another is varied. It is a short-run law. Changing all inputs together is the subject of returns to scale, which is a long-run concept.

  1. AAll factors are increased in the same proportion
  2. BThe state of technology remains unchanged and at least one factor is fixedCorrect
  3. CEvery unit of the variable factor is different in efficiency
  4. DThe firm is operating in the long run

Explanation

The law applies in the short run, with at least one fixed factor and given technology. Units of the variable factor are assumed homogeneous. Increasing all factors in the same proportion relates to returns to scale, not variable proportions.

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