Question

Explain how the law of decreasing marginal returns determines the shape of the total product curve for a firm.

Answer 1

There are three stages that the Total product curve can be divided into.

Stage 1. When the marginal product rises

This is when the TP curve rises at a increasing rate.

Stage 2 : When the marginal product starts to fall ( but have a positive vale)

This is the stage where the TP curve rises at a decreasing rate , till MP =0

Stage 3: Where the MP falls ( MP takes a negative value )

This is where production is beyond full capacity and there are negative returns to scale, the total product starts falling.

Stage 2 and 3 exhibit decreasing returns to scale.

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