The behaviour of output in terms of TP, AP and
MP on account of increasing variable input is divided into three stages, as
shown in the graph below:
Stage
I : Stage of increasing returns
 |
| Stages of Production |
1) Starts from the point of origin and continues
till the AP is maximum at point A
2) TP is increasing throughout the first stage.
Till
point M(point of infexion) increasing at increasing rate and after point M
increasing at decreasing rate till point A.
3) MP rises first, reaches the maximum at point M
and then it starts falling, but is positive throughout.
4) AP curve rises throughout, and is maximum at point
A.
Stage
II : Stage of dimnishing returns
1) TP goes on increasing , but at a dimnishing rate.
It reaches the maximum at point T, and the second stage ends here.
2) Both AP and MP are dimnishing, but are
positive.
The stage ends where MP is zero.
Stage
III : Stage of negative returs returns
1) In this stage TP starts falling
2) MP becomes negative and goes below X axis.
3) AP is falling, but is positive.
In
which stage a rational producer will operate
A rational producer will not like to operate in
stage I, because in this stage AP is countiniously rising, if he stops it means
he is not takin full advantage of constantly rising productivity .
The firm can
earn more profit by hiring more variable output and increasing his AP.
So more
can be earn so a rational producer wants to earn more so will not like to
operate in this stage.
A rational producer will not like to operate in
stage III too, because in this stage MP is negative, thus producer can increase
his TP by employing less of the variable factor, as more of variable factors
result in decrease in output.
So a rational producer will not incur expenditure
in employing additional producer if it result in decrease in output.
So will
not like to operate in this stage.
So, by the process of elimination, we come to the
conclusion that a rational producer will operate in stage II, as here TP is
maximum and MP is Zero.
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