Question

In which stage of production a rational producer likes to operate in the condition short-run production?

• A. First stage
• B. Second stage
• C. Third stage
• D. None of these

Hint:

A rational producer operates in Stage 2, where they get diminishing but still positive returns from adding more input.

Answer 1

The Correct Option is B

The Law of Variable Proportions has three stages:

Stage I: Increasing Returns. Marginal Product (MP) is rising and is greater than Average Product (AP). A producer will not stop here as they can increase output by adding more variable input.
Stage II: Diminishing Returns. MP is falling but is still positive. AP is also falling. This is the economically rational stage to operate in, as total product is still increasing, although at a diminishing rate. The producer will operate somewhere in this stage.
Stage III: Negative Returns. MP becomes negative. Total product starts to fall. A rational producer will never operate in this stage.