CMA Foundation · Fundamentals of Business Economics and Management · Theory of Production
Which statement about the relationship between average product (AP) and marginal product (MP) of a variable factor is correct?
When marginal product is above average product, average product is rising, because each extra unit adds more than the current average. Marginal product intersects average product at the maximum of average product, not its minimum, and the two are not always equal.
- AWhen MP is above AP, AP is risingCorrect
- BWhen MP is above AP, AP is falling
- CMP cuts AP at the minimum point of AP
- DAP and MP are always equal
Explanation
AP rises when the additional unit produces more than the current average, that is, when MP exceeds AP. MP cuts AP from above at the maximum point of AP, not the minimum. So the option saying MP above AP makes AP fall is the reverse of the true rule.
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