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Questions
With the help of a suitable diagram, discuss the relationship between Average product and Marginal Product.
Explain the relation between the average product and the marginal product with the help of a diagram.
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Solution
In Stage I (under the law of increasing return), when AP rises, MP > AP. The MP curve lies above the AP curve in the above diagram when it later slopes positively. At the end of stage I, when AP is at its maximum for L1 of labour, MP = AP and the MP curve intersects the AP curve at its maximum point, k.
In Stage II (under the law of diminishing return), when AP falls, MP < AP and the MP curve lies below the AP curve and intersects the labour axis, i.e., MP = 0, for the L2 level of labour at the end of Stage II.
In stage III (under the law of negative return), AP continues to fall but never becomes zero for positive labour. MP < 0 and the curve lies under the labour axis.
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