Question

Statement 1: A rational firm aims to operate in the second phase of the law of variable proportion.

Statement 2: In diminishing returns to a factor, i.e., the second phase of the law of variable proportion, MP falls.

Options

• Both the statements are true.

• Both the statements are false.

• Statement 1 is true but statement 2 is false.

• Statement 1 is false but statement 2 is true.

Answer 1

Both the statements are true.

Explanation:

A rational firm strives to operate in the second phase of the law of variable proportion, which is decreasing returns to a factor because in this phase, the total product reaches its maximum and the marginal product begins to fall but remains positive.