CA Foundation · Business Economics · Theory of Production and Cost
Which statement correctly describes the relationship between average product (AP) and marginal product (MP) of a variable input?
When marginal product is above average product, average product is rising. An extra unit that adds more than the current average pulls the average up. Once marginal product falls below average product, the average declines, and MP crosses AP at its maximum.
- AWhen MP is above AP, AP is risingCorrect
- BWhen MP is above AP, AP is falling
- CMP always remains below AP
- DAP and MP are equal throughout
Explanation
If the extra worker produces more than the current average, the average is pulled up, so AP rises whenever MP > AP. When MP < AP, AP falls. MP cuts AP from above at AP's maximum, so MP is not always below AP.
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