Question

With the help of a suitable diagram, discuss the relationship between Average product and Marginal Product.

Answer 1

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.