Question

Giving reasons, state whether the following statements are true or false:
(i) Average product will increase only when marginal product increases.
(ii) Under diminishing returns to a factor, total product continues to increase until marginal product reaches zero.

Answer 1

(i) The statement is false. Average product can rise even when marginal product falls.



(ii) The statement is true. Under diminishing returns to a factor, the marginal product tends to fall. Falling marginal product implies that total product increases at a diminishing rate. TP is maximum when MP=0. After this point, MP becomes negative and TP then starts to fall.