CA Foundation · Business Economics · Theory of Production and Cost
Under the law of variable proportions, in which stage of production does total product reach its maximum and marginal product becomes zero?
Total product is maximum and marginal product is zero at the end of Stage II, where it meets Stage III. After this point marginal product turns negative and total product starts to fall, so a rational firm will not operate beyond it.
- AAt the end of Stage II, the boundary with Stage IIICorrect
- BAt the beginning of Stage I
- CAt the point where average product is maximum
- DIn the middle of Stage III
Explanation
Total product keeps rising while MP is positive and peaks when MP equals zero. This point marks the end of Stage II, after which MP is negative and TP falls in Stage III. The point where AP is maximum is the end of Stage I, where MP equals AP, not zero.
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.
More Theory of Production and Cost questions
- In the short run, the law of diminishing marginal returns begins to operate when:
- In the short run, as output increases from zero, which cost curve is the vertical distance between the average total cost (ATC) curve and th…
- A garment unit in Tiruppur uses 4 units of capital and 20 workers to make 1,000 shirts. When it moves to 8 units of capital and 40 workers, …
- A firm in Rajkot employs 6 workers and produces 114 units. Its average product at 5 workers is 20 units. What is the marginal product of the…
- Which statement about the relationship between average fixed cost (AFC) and output in the short run is correct?
- A workshop in Ludhiana has the following total product (TP) with labour: 1 worker = 8 units, 2 workers = 20 units, 3 workers = 33 units, 4 w…