Question

Discuss the cases when Stage I and Stage III can also be considered rational stages of production.

(The subject is production economics)

Answer 1

In general stage II of the production is considered to be rational when MP and AP diminish, so that marginal revenue equals marginal cost and profit maximizing output is achieved, but other stages can also be considered to be rational in nature. The stage 1 is considered rational, when demand is very specific and focused so that there is no need to produce more. So, the firm produces at the level, when AP and MP increase and then later on, decrease. It helps to maximize the output per unit of cost and get the higher return. It is expected to be in monopolistic competition. Stage 3 is considered to be rational when MC becomes zero. Now, AP is diminishing, but again above the zero is considered good for the industries where MC is zero. Here, increase in output  may cause MP to be become negative as well. Such case takes place when there is a complete control upon the resources, or copyrights.  

So, different stages of production suits to different types of industries.