Indicate whether the following statements are true or false, and explain your an
ID: 1231971 • Letter: I
Question
Indicate whether the following statements are true or false, and explain your answers:a. When marginal product reaches its maximum, average product is also at its maximum.
b. When marginal product is less than average product, then it must be that average product is declining.
c. The law of diminishing marginal returns states that increases in the variable input reduce the total product.
d. A firm with one worker can produce 30 units of a product that sells for $4 per unit, but the same firm with two workers can produce 70 units of the same product. The marginal revenue product of the second worker is $400.
e. A firm can maximize profit in Stages I or II of production, but not Stage III.
Explanation / Answer
a) False, when marginal product is at its maximum, marginal product is greater than average product and average product continues to increase until average product is equal to marginal product
b) True
c) False, the law of diminishing marginal returns states that increases in the variable output will increase total product, but at a decreasing rate (eventually becoming negative and decreasing total product)
d) False, the first worker's marginal product is 30*$4 = $120. The second worker's marginal product is (70-30)*$4 = $40 * 4 = $160
e) True