Answer to Question #318212 in Microeconomics for Maggie

Question

Explain the 3 stages of production. Hint use graphs

Answer 1

Stage 1

Short-run manufacturing Stage I develops as the average product rises. The marginal product of the variable input grows as more of the variable input is added to the fixed input. Most crucially, marginal product is higher than average product, resulting in a rise in average product. The slope of the average product curve clearly demonstrates this.

Stage 2

Short-run production in Stage 2is marked by falling but positive marginal returns. The marginal product of the variable input reduces as more of the variable input is added to the fixed input. Most importantly, the law of diminishing marginal returns governs Stage 2.

Stage 3

Negative marginal returns indicate the commencement of Stage 3. The law of diminishing marginal returns causes marginal product to fall so low that it becomes negative at this level of short-run production.

The marginal product curve is the most evident indicator of Stage III output, but the total product curve also indicates it.