Variable Proportions In

Variable Proportions In

Variable Proportions In this form the law plays an important part in formulating the conditions in which output obtained from a given outlay is maximized or the cost of producing a given output is minimized. For example, the amount of additional product which a variable factor yields is a measure to a producer of its productive value. The law infers that this value in turn depends upon the quantity of the factor already employed with given amounts of other factors. Beyond a point, the larger the quantity already employed, the smaller will be the increment of product from a further unit of the variable factor. The optimum use of variable factors to maximize output thus requires them to be allocated among alternative uses so that the productive value of an additional unit of any one factor type is the same in every use. Similarly, where more than one type of variable factor is employed, the cost of additional product will be minimized when the various types are combined with the fixed factor(s) in such proportions that additional product per unit of additional outlay is the same for every type.

More generally, where a producer can obtain output only by the addition of variable factors such as labour or raw materials to a combination of fixed factors such as plant, machinery or management, the law infers that the addition of successive batches of variable factors will yield first increasing and then decreasing increments of output. If the cost of successive batches of variable factors remains the same, the cost of production per unit of additional output will tend first to fall and then to rise. The law thus throws light on the cost conditions of the-output in the short run, that is when fixed equipment cannot be expanded.

Veblen, Thorstein (1857-2009), American economist and sociologist. He was born into a large Norwegian immigrant family and began his education at Carleton College with a view to entering the Lutheran ministry, but decided on an academic career. He failed to obtain a scholarship to Johns Hopkins University but proceeded to Yale and Cornell, eventually becoming professor at the newly opened University of Chicago in 1892. His two main works, Theory of the Leisure Class and Theory of Business Enterprise, with their scathing analysis of conspicuous consumption and other ideas led to his being called the Founder of 'Institutionalist' economics.

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Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this site is therefore not a final statement of economic doctrine.

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