Skip to content

CA Foundation · Business Economics · Theory of Production and Cost

In a farm in Punjab, a variable input is applied to a fixed plot of land. Total product is 30 units with 3 units of input and 60 units with 4 units of input. Average product at 4 units is 15 per unit. What is the marginal product of the 4th unit and what does it indicate?

The marginal product of the 4th unit is 30 units, found as 60 minus 30. Since this is higher than the average product of 15, it pulls the average up, so average product is rising, from 10 at three units to 15 at four units.

  1. A30 units; marginal product is above average product, so AP is risingCorrect
  2. B30 units; marginal product is above average product, so AP is falling
  3. C15 units; marginal product equals average product, so AP is at its maximum
  4. D45 units; marginal product is above average product, so AP is rising

Explanation

MP of the 4th unit = 60 − 30 = 30. AP at 3 units = 30/3 = 10, and AP at 4 units = 60/4 = 15, so AP rises. MP (30) exceeds AP (15), which is consistent with a rising AP. The 45 option wrongly uses the sum of the two totals divided by two or a similar error.

Did you get it right without looking?

One question tells you little. A timed set on Theory of Production and Cost shows your real accuracy, how long you take and where you lose marks.

Practise Theory of Production and CostFree diagnostic mock

More Theory of Production and Cost questions