Which of the following states that "The marginal product of a factor input initially rises with its employment level, but after reaching a certain level of employment, it starts falling"?

Option 1 -> Refers to proportional increase in all inputs leading to less than proportional increase in output.

Option 2 -> Describes how marginal product of a variable input first increases, then decreases when other factors are held constant.

Option 3 -> Related to consumer theory about substituting one good for another, not production.

Option 4 -> Refers to proportional increase in all inputs leading to more than proportional increase in output.

Hence, Option 2: Law of Variable Proportions -> This law states that when one input is varied while keeping others constant, the marginal product initially rises (increasing returns), reaches a maximum, and then falls (diminishing returns). This occurs in three stages: Stage I (increasing MP), Stage II (diminishing but positive MP), and Stage III (negative MP). It perfectly describes the pattern mentioned in the question where MP first rises then falls with employment level. -> correct