Rational stage of producer is that when in given cost conditions, he maximizes his production. Alternately, the cost of production may be minimum at the given output. This rationality stage of producer is called Producer’s Equilibrium.
In the figure, it is denoted by point (E) on TP curve or by N at the last point of second stage.
Similarly, more than ON labour will cause negative marginal productivity and less than NE total product. Therefore, a rational consumer will employ ON labour, and will get NE, optimum or maximum output. Therefore, the rational stage of productivity is the second stage only. In the first stage, all the three-total product, marginal product and average increase. This induces the producer to produce more and he enters into the second stage. Similarly, in the third stage, total product and average product decline and marginal product becomes negative. Therefore, producer will not continue productivity in the third stage. He will increase his labour power upto ON and will get maximum total output at point E of TP or NE of total output.
Manufacturers, societies and governments have their own importance in the concept of production functions and products. After comparing the cost, the manufacturer will decide on the production of products and services. Generally, a manufacturer selects the product in which the cost of production is low, the quantity of production is high and the quality of production is the best.
