Law of Variable Proportions

Definition

Health Economics

  • This 'law' is a generalization about the nature of technology when factors of production are substitutable. It states that as the rate of use of one factor is increased, the others remaining constant, the marginal product (the associated increase in output) will eventually fall and the average product too will eventually fall. While this is suggested as a general characteristic of production functions, it is particularly applicable in the short run. The term 'law of diminishing returns' is sometimes met but ought probably to be discarded in that it focuses attention on the 'constancy' or otherwise of factors of production rather than what is critical: the proportions in which the different factors are used. The element in the definition that runs 'the others remaining constant' is not a literally descriptive characterization but rather an analytical one, describing an essentially mathematical property of a production function.
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