Question

State whether the following statements are true or false. Give reasons for your answer: 

 Total product always increases whether there is increasing returns or diminishing returns to a factor. 

 

Answer 1

True, Total Product (TP) always increases during the phase of increasing returns or diminishing returns to a factor. However, the difference lies in the rate at which TP rises during the two stages. TP increases at an increasing rate during the stage of increasing returns to factor, whereas, during the stage of decreasing returns, TP increases at a diminishing rate.