CMA Foundation · Fundamentals of Business Economics and Management · Theory of Production
Which statement about the Law of Variable Proportions is correct?
The marginal product curve cuts the average product curve at the maximum point of average product. Before that point MP is above AP and pulls it up; afterwards MP is below AP and pulls it down. Total product peaks only when MP is zero.
- ATotal product is maximum when marginal product is at its maximum
- BMarginal product curve cuts the average product curve at the maximum point of average productCorrect
- CMarginal product is zero when average product is maximum
- DTotal product falls whenever marginal product starts to decline
Explanation
MP rises above AP, pulls AP up, and meets AP at AP's maximum, after which MP is below AP. TP is maximum when MP is zero, not when MP is maximum. TP keeps rising while MP is positive even if declining.
Did you get it right without looking?
One question tells you little. A timed set on Theory of Production shows your real accuracy, how long you take and where you lose marks.
More Theory of Production questions
- A producer is using labour and capital so that MP of labour is 30 units at a wage of Rs 10, and MP of capital is 40 units at a price of Rs 2…
- A bakery in Indore uses one oven (fixed) and varies labour. Total product for 1, 2, 3, 4, 5 workers is 10, 24, 36, 44, 48 units respectively…
- Which of the following best describes 'returns to scale' in the theory of production?
- If the prices of both labour and capital rise by the same percentage while the firm's total outlay stays unchanged, what happens to the isoc…
- A firm's total cost of producing 400 units is Rs 40,000. When it expands to 1,000 units, total cost becomes Rs 80,000. Which of the followin…
- A firm's long-run average cost curve is U-shaped with its minimum at 5,000 units, where average cost is Rs 60. At 8,000 units, average cost …