Question

Observe the diagram given below and answer the questions that follow.

1. Identify the curves labelled ‘K’ and ‘T’. Name the stage of return in operation within the range of employment, L₂L₃. [2]
2. Producer is reluctant to produce in the stage of production depicted by the range L₂L₃. Defend or refute the statement with a reason. [2]
3. Briefly explain any two reasons of operation of negative return to a factor. [2]

Answer 1

1. K = Marginal Product (MP) curve; T = Total Product (TP) curve. The employment range L₂–L₃ is Stage II, the stage of diminishing returns (the normal/rational stage of production).
2. Refute. A producer is not reluctant to produce in L₂–L₃; this is precisely the preferred range (stage II) because total product is still rising (though at a diminishing rate) and marginal product is positive until L₃, so additional labour still increases output. Rational firms therefore operate in stage II rather than in stage I or stage III.
3. Two reasons for negative returns to a factor (stage III):
   • Overcrowding: Too many units of the variable factor (e.g., workers) per fixed input reduces productivity because workers get in each other’s way and have fewer tools/resources per person.
   • Management problems: With excessive numbers of the variable factor it becomes harder to supervise and coordinate work; shirking, poor accountability and inefficiency increase, lowering marginal product.