Question

Why is Stage II considered the rational stage for a producer to operate?

Options

• Average product is at its maximum

• The fixed factor is fully under-utilized

• Marginal product and average product are positive but falling

• Marginal product is negative

Answer 1

Marginal product and average product are positive but falling

Explanation: 

In Stage II, output increases at a decreasing rate, and the producer makes rational decisions about input use.