When MP equals AP AP is maximum There are three stages of production which are

When mp equals ap ap is maximum there are three

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When MP equals AP, AP is maximum There are three stages of production which are related to the efficient combination of inputs used in the production process. Stage 1: Increasing Returns Starts from point 0 and ends when MP and AP intersect. At this stage, total product is increasing at an increasing rate up to the point of maximum MP. After that, TP will increase but at a decreasing rate. At this stage, each additional increase in labor units will result in greater increase of the total product. Therefore, a rational producer will continue to produce goods at this stage. Stage 2: Diminishing Returns This stage begins from the intersection point of MP and AP until MP cuts the horizontal axis (MP = 0).At this stage, TP is increasing but at a decreasing rate as both the values of AP and MP are decreasing. This is the most efficient stage of production because the combinations of variable and fixed inputs are used efficiently. A rational producer will want to produce at this stage. Stage 3: Negative Returns This stage begins when MP equals 0 and continues to decline thereafter. At this stage, TP is decreasing and MP is negative. This shows that an increase in labor will cause TP to decline. Thus, a rational producer will not produce at this stage of production because an increase in labor will lead to a decline in the total product.
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Exercise 1. A farmer has the following extracts of his farm record. Land (hectare) No. of workers Total Product Average Product Marginal Product 2 0 0 2 1 1 2 2 4 2 3 9 2 4 16 2 5 25 2 6 32 2 7 35 2 8 36 2 9 34 a. Complete the above table. b. Sketch the total product, marginal product and average product curve in one diagram. c. Describe the relationship between marginal product and average product. d. What is the number of workers after which diminishing marginal returns start? e. Suppose the price of good increases and the farmer can maximize profit by producing maximum output, how many workers will the farmer employ? 2. A firm produces good X with just two factors, capital and labour. Capital is fixed in supply while labour is a variable input. No. of Workers Total Product Average Product Marginal Product 1 10 10 2 13 3 41 4 52 5 8 6 10.8 7 9.6 8 8.4 9 63 a. Complete the table above. b. Over what range of labour inputs are there: i. increasing returns to labour ii. decreasing returns to labour iii. negative returns to labour 3. Given the table below:
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Input (unit) Total product (unit) 0 0 1 5 2 20 3 32 4 42 5 50 6 55 7 58 8 58 9 56 a. Which level of input shows increasing marginal returns? b. At which level of input does diminishing marginal returns set in? c. At which level of input does a negative marginal return set in? d. What is the value of total product when marginal product is zero? THEORY OF COST Costs and profits Profit maximization is the motivation for any business decisions.
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  • Fall '17
  • zarith
  • Marginal product, Economics of production

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