Question

Giving reasons, state whether the following statements are true or false:

(i) Average product will increase only when marginal product increases.

(ii) With increase in level of output, average fixed cost goes on falling till it reaches zero.

(iii) Under diminishing returns to a factor, total product continues to increase till marginal product reaches zero.

(iv) When there are diminishing returns to a factor, total product always increase.

Answer 1

(i) False. Average product will increase only when marginal product is greater than average product whether MP is rising or falling.

(ii) False. AfC = TFC/Output. TFC is constant and positive. So with an increase in output AFC will fall but can never he zero.

(iii) True. Under diminishing returns MP falls. TP increases till MP is positive.

(iv) False. This is because in a situation of diminishing returns to a factor marginal product tends to fall. Falling MP implies that total product should be increasing, though at a diminishing rate. TP will increase till MP remains positive.