Question

State the three stages of production.

Using suitable diagrams, explain the three stages of production when one factor input is variable.

‘If more variable factors are employed with fixed factors, the total product increases initially at an increasing rate and finally it falls.’ Explain the three stages of the law of variable proportions with the help of TP, AP, and MP curves.

Answer 1

Three stages of production with reference to Total Product (TP), Marginal Product (MP), and Average Product (AP):

1. Stage I: Stage of Increasing Returns:
   • This stage starts from zero units of labor.
   • TP increases rapidly, meaning each extra worker adds more to the output.
   • MP increases at first, reaches a maximum at point M, and then starts falling but stays positive.
   • AP (Average Product) keeps increasing.
   • This stage ends when AP reaches its maximum at point A.
   • Reason: Better use of fixed inputs like machines. Workers are helping use machines more efficiently.
   • Output increases more than proportionally. It’s a good stage, but not the most efficient yet.
2. Stage II: Stage of Diminishing Returns:
   • Starts when AP is maximum (point A).
   • TP still increases, but at a slower rate.
   • MP falls and becomes zero at point T (TP maximum).
   • AP also falls but stays positive.
   • This stage ends when MP = 0.
   • The most important stage for producers is when they get maximum output without any fall.
3. Stage III: Stage of Negative Returns:
   1. Starts after point T (after MP becomes zero).
   2. TP starts falling.
   3. MP becomes negative, meaning adding more workers reduces total output.
   4. AP keeps falling but stays positive. 
   5. Not good; too many workers reduce efficiency.