CA Foundation · Business Economics · Theory of Production and Cost
Which of the following best describes the law of variable proportions?
The law of variable proportions says that when one input is increased while other inputs stay fixed, the marginal product of the variable input eventually begins to fall. It is a short-run law, unlike returns to scale, which vary all inputs.
- AWhen all inputs are increased in the same proportion, output increases in a different proportion
- BWhen one input is increased while others are held fixed, the marginal product of the variable input eventually declinesCorrect
- CWhen output increases, the average cost always falls continuously
- DWhen the price of a factor rises, the firm always uses more of it
Explanation
The law of variable proportions concerns the short run with at least one fixed factor: adding more of the variable input eventually lowers its marginal product. Option 1 describes returns to scale, which concerns changing all inputs together in the long run.
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