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CA Foundation · Business Economics · Theory of Production and Cost

The Law of Variable Proportions is valid only under which of the following conditions?

The Law of Variable Proportions holds when technology is constant and at least one factor is fixed while another factor is varied. It is a short-run law. Changing all inputs in the same proportion relates to returns to scale, which is a different long-run concept.

  1. AAll factors of production are varied in the same proportion
  2. BTechnology is constant and at least one factor is kept fixed while another is variedCorrect
  3. CTechnology improves as more units of the variable factor are employed
  4. DBoth labour and capital are increased until output doubles

Explanation

The law applies in the short run when one or more inputs are fixed and only one input is varied, with technology unchanged. Option A describes returns to scale, which is a long-run concept. Improving technology would shift the whole product curve rather than explain the law.

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