Question

The production function slopes upward, but its slope declines from left to right. Give an economic interpretation of each of these properties of the production function.

Answer 1

Answer - The production function slopes upward but initially the returns are of the increasing nature and MP is increasing. Afterwards TP is increasing , but MP is decreasing because of which the slope starts declining . This is because of the law of diminshing marginal returns. As more and more units of input are added , initially the returns increase at increasing rate , but after wards the output increases with decreasing rate. This is the reason for the change of the slope from initial level to other stages. After the maximum point , the TP starts decreasing and MP becomes negative.