Question

Which of the following indicates when Stage I ends and Stage II begins in the short-run production?

A) when AP = 0
B) when MP = 0
C) when MP = AP
D) when MP starts to diminish

Answer 1

B) when MP = 0 indicates when Stage I ends and Stage II begins in the short-run production. In the short-run production process, Stage I is characterized by increasing returns to scale, where the marginal product of an input (such as labor) is increasing.

In Stage II, the marginal product of the input begins to diminish, indicating that the production process is becoming less efficient. The point at which the marginal product of the input is equal to zero marks the transition between these two stages.