CA Foundation · Business Economics · Theory of Production and Cost
In the three stages of the Law of Variable Proportions, a rational producer will not operate in Stage I mainly because:
A rational producer avoids Stage I because average product is still rising and the fixed factor is underused. Employing more of the variable factor raises output per unit, so stopping there wastes potential efficiency. Negative marginal product occurs only in Stage III.
- AMarginal product is negative in this stage
- BTotal product is falling in this stage
- CAverage product is still rising, so the fixed factor is underutilised and more variable input raises output per unitCorrect
- DMarginal product is below average product
Explanation
In Stage I, AP keeps rising up to its maximum, meaning the fixed factor is not fully used. Adding variable input increases efficiency, so a producer would continue. Negative MP and falling TP belong to Stage III, and MP below AP belongs to Stages II and III.
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