Question

Why Does It Not Make Any Economic Sense to Produce in Stage 1 or Stage 3?

Answer 1

In Stage 1 the firm will not be using the capacity of the production to its optimum capacity or it will be under utilising its capacity so it does not make sense to produce at this stage.

While in stage 3, the firm would be using more variable input for producing output, which is a waste of input as the efficiency of production is decreasing. Therefore, it does not make sense to produce in stage 3.

Also read:

• Total Product Average Product and Marginal Product
• Meaning of Demand and Factors Affecting Demand
• Law of Variable Proportion
• The Law of Diminishing Marginal Product and the Law of Variable Proportions