Stages of Short-run law

Three stages of Short-run law:

The behavior of the output whenever the differing quantity of one factor is joined with a fixed quantity of the other and can be classified into three phases. They are:

(i) Increasing returns stage
(ii) Decreasing returns stage
(iii) Negative returns stage

The three phases could be better understood by the table and figure shown below:

Table: Stages of Law of Variable Proportions

2108_table varible proportions.jpg


2336_law of variable proportions.jpg

Figure: Law of Variable Proportions

Stage I: Stage of increasing returns:

Stage I finishes where the average product arrives its highest (i.e., maximum) point. During this phase, the total product, the average product and the marginal product are rising. It is notable that the marginal product in this phase increases however in a later portion it begins declining. However marginal product begins declining, it is bigger than the average product, and therefore the average product continues to increase.

Stage II: Stage of decreasing returns:

Stage II finishes at the point where the marginal product is zero.  In second phase, the net product continues to rise however at a diminishing rate. The marginal and average products are declining but are positive. At the end of second phase, the net product is maximum and the marginal product is zero.

Stage III: Stage of negative returns:

In this phase the marginal product becomes negative. The net product and the average product are refusing.


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