Question

Question 7 Which of the following is true? If Marginal product is above average product then average product must be increasing If Marginal product is below average product then average product must be increasing Marginal product intersects average product at average products maximum Marginal product never intersects average product Both a and care true Question 8 OLTPAP NP TFC TVC TCMC AFC 00 115 2 12 3122 30 537 6 42 144 In the above chart where does diminishing marginal returns set in? After the second unit of labor after the third unit of labor after the fourth unit of labo after the fifth unit of labor It is impossible to tell with out knowing the wage rate

Answer 1

1. Both a and c are true. If marginal product is above average product, then average product is increasing. Marginal product intersects average product when average product is maximum.

Explanation

This is based on the law of variable proportions. This law states that, when one factor input is increased while the other is held constant, the output increases only till a certain point and thereafter starts diminishing. Thus, both average product and marginal product start declining.

2.

QL    TP    MP

0       0            -

1        5            5

2       12            7

3       22         10

4        30          8

5       37           7

6         42          5

7         44          2

In this case the diminishing marginal returns set in after fourth unit of labor.

Explanation

This is because, only after 4 th labor is added, the marginal product starts decliing.