Question

o. The total product of a imn is a éollows. which statement is correcet Q- Tetal Product A) MPt is increasing in phase I C) APL is increasing in phase Ill B) MPt is increasing in phase II. D) MPL is maximized in the edge of phase II and Ill. .

Answer 1

Question No- 6

Answer:- Option (A) MPL is Increasing in Phase I

Explanation: it is clearly evident from the given diagram in the question that the firm operates under short-run, where as the short-run production function is determined by the law of variable proportion. The law of variable proportion states that when a producer continues production by adding more and more variable factor i.e. labour to the constant fixed factor, the total product (TP) first increases in a increasing rate, then increases in a diminishing rate and finally declines.   

TP, AP and MP TP Phase-Phase -lll Phase I AP Units of Labour Mp

Phase-I is the stage of increasing return because in this stage all the total product (TP), average product(AP) and marginal product (MP) increases, but the increasing rate of MP is more than the increasing rate of AP. Every addition of the variable factor i.e. labour leads to better utilisation of fixed factors as a result the MP of labour increases by adding an additional labour, so TP increases in increasing rate. Option (A) is true because MP of labour increases in Phase –I, it come to an end when the MP intersects AP from its maximum, that further leads to the beginning of Phase-II. In the above diagram at OA units of labour phase I come to an end.

Phase-II is the stage of diminishing return, in this stage average product (AP) and marginal product (MP) falls, but the falling rate of MP is more than the falling rate of AP as result TP increases in a diminishing rate. So option (B) cannot be true because MP of labour is falling in Phase-II. Phase-II come to an end when MP becomes zero that leads to beginning of stage-III. So option (D) cannot be true because at the edge of phase II and III, MP of Labour becomes zero. In the above diagram at B units of labour, MP of labour is zero.

Phase-III is the stage of negative return because in this stage all the total product (TP), average product (AP) and marginal product (MP) falls, in Phase III, MP of labour becomes negative as a result TP decreases and AP also decreases. So Option (C) cannot be true because in Phase –III AP of labour decreases. Which is clearly evident from the above diagram