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CA Foundation · Business Economics · Theory of Production and Cost

A workshop in Ludhiana has this data on labour (L) and total product (TP): L=1, TP=12; L=2, TP=30; L=3, TP=48; L=4, TP=60; L=5, TP=65; L=6, TP=60. Which statement is correct?

Marginal product turns negative at the sixth worker, since output falls from 65 to 60, giving MP of -5. This marks the start of Stage III. Total product peaks at the fifth worker, but marginal product there is 5, not zero.

  1. AAverage product is maximum at L=3 and marginal product equals average product there
  2. BTotal product is maximum at L=5 and marginal product is zero there
  3. CMarginal product turns negative at L=6 and Stage III begins at L=6Correct
  4. DAverage product is maximum at L=4 where marginal product is 12

Explanation

MP: 12, 18, 18, 12, 5, -5. AP: 12, 15, 16, 15, 13, 10. AP is maximum at L=3 (16), but MP there is 18, not equal to 16, so the first option is wrong. At L=5 MP is 5, not zero. MP turns negative only at L=6, so Stage III begins there.

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