Question

7. If a continuous Total Product function exhibits diminishing returns at every level of input L>0, which of the following must be true? I. TP must eventually decrease II. AP is always falling III. TP is always getting flatter. a) Only I must be true b) Only I and II must be true C) Only I and III must be true d) Only Il and Ill must be true e) All 3 must be true

Answer 1

There are diminishing returns when total product increases but at a diminishing rate. This means that additions to the total product which are called marginal products, continue to decline. When marginal product is falling average product can be increasing as well as decreasing because it reaches its maximum level when the marginal cost is falling. Therefore first statement and second statement are not correct. Third statement is correct because the slope of the total product continues to decline indicating that the total product curve is becoming flatter

Option A is correct.