Factor proportions
Also called: Factor ratio · Topic: Production Function, Returns and Costs · NCERT: Class 12, Ch 3 "Production and Costs"
Meaning
Factor proportions are the ratio in which two inputs, such as labour and land, are combined to produce output. If one input is kept fixed and more of the other is added, the ratio changes. This change explains the law of variable proportions. At first the ratio gets better, because the fixed input was being under-used, so each extra worker adds more output than the one before. Beyond a point the fixed input gets crowded, and each extra worker adds less.
Example
A farmer has 4 hectares. With 1 worker, there is too much land for one person. Marginal product rises from 10 to 14 to 16 as the 2nd and 3rd workers join. From the 4th worker the land gets crowded, and marginal product falls to 10.
Don't confuse with
- Returns to scale: here all inputs rise in the same proportion, so the factor ratio stays the same. This is possible only in the long run.