Combining the Factors of Production

Abstract

This ‘law’ shows how physical yields vary as factors of production are combined in different proportions. Assume: (a) two factors; (b) all units of the variable factor are perfect substitutes for each other; (c) no change in techniques or organisation. The law: if one factor is held fixed, but additional units of the varying factor are added to it, eventually the extra output resulting from an additional unit of the varying factor will become successively smaller. If land is the fixed factor and labour the variable factor, marginal output is the addition to total output obtained by increasing the labour force by one man. Marginal output equals average output when average output is at a maximum.