Question

Using two graphs stacked, show the relationship between Total Product (TP) and Marginal Product (MP). Clearly...

  1. Using two graphs stacked, show the relationship between Total Product (TP) and Marginal Product (MP). Clearly label / identify increasing, diminishing and negative returns. Using another 2 stacked graphs, show the relationship between Marginal Product (MP) and Marginal Cost (MC) again identifying increasing, diminishing and negative returns.

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Answer #1

Relationship between TP and MP:

When MP increases, TP increases at an increasing rate: Increasing return

When MP dcreases, TP increases at a decreasing rate: Decreasing return

When MP becomes negative, TP decreases: Negative return

When MP = 0, TR is maximum

These relationships are shown in the following graph:

Relationship between MP and MC:

When MP increases, MC decreases

When MP decreases, MC increases

When MP is maximum, MC is minimum

These relationships are shown in the following graph:

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