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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.


Solution

(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. 

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