Law of Variable Proportions is also known as the Law of Diminishing Returns. This law is a generalization which the economists make about the nature of technology which makes possible to combine the same factors of production in a number of different proportions to make the same product. The law states:
When increasing amounts of one factor of production are employed in production along with a fixed amount of some other production factor, after some point, the resulting increases in output of product become smaller and smaller. (That is, first the marginal returns to successive small increases in the variable factor of production turn down and then eventually the overall average returns per unit of the variable input start decreasing.)
s that the available quantity of atleast one factor of production is fixed at a given level and that technological knowledge does not change during the relevant period, the Law of Diminishing Returns normally translates into a statement about the short-run choice of production possibilities facing a firm. Since in the longer run it is virtually always possible for a firm to acquire more of the temporarily “fixed” factor-- building an additional factory building, buying additional land, installing additional machines of the same kind, installing newer and more advanced machinery and so on.
A simple example of the working of the Law of Diminishing Returns comes from gardening. A particular twenty by twenty garden plot will produce a certain number of pounds of tomatoes if the gardener just puts in the recommended number of rows and plants per row, waters them appropriately and keeps the weeds pulled. If the gardener varies this approach by adding a pound of fertilizer to the topsoil but otherwise does
everything the same, he can increase the number of pounds of tomatoes the garden plot yields by quite a bit. One should notice here the amount of land which is being held fixed or constant. If he adds two pounds of fertilizer rather than just one, probably he can get still more tomatoes per season. But the increase in tomatoes harvested by going from one pound to two pounds of fertilizer is probably smaller than the increase he gets by going from zero pounds to one (diminishing marginal returns). Applying three pounds of fertilizer may still increase the harvest but by only a very little bit over the yield available by using just two pounds. Applying four pounds of fertilizer turns out to be overdoing it, i.e. the garden yields fewer tomatoes than applying only three pounds because the plants begin to suffer damage from root-burn. And five pounds of fertilizer turns out to kill nearly all the plants before they even flower.
