Graphical representation of various returns, Microeconomics

Assignment Help:

Graphical Representation of Various Returns:

Diminishing Returns: If the TP curve is as shown in the adjacent Figure, then the MPL given by tanθ  is throughout less than the APL given by tanθ.  

 

1133_Graphical Representation of Various Returns.png

As APL is falling from the relation between MP and AP, MP < AP we have the adjoining Figure.   

195_Graphical Representation of Various Returns1.png

Increasing Returns Here APL rises and tan  < tanθ , for all L. Therefore, MP > AP. This is shown in the adjacent Figure.  

 

677_Graphical Representation of Various Returns2.png

 

Constant Returns Here, APL is constant and tanθ  = tan , therefore, MPL = APL as is shown by a horizontal straight line in the next Figure(a,b)   

2493_Graphical Representation of Various Returns3.png

The TP curve is such that upto point A, MP is rising and so is AP and MP > AP, as shown in the diagram below. Beyond point A, MP falls but AP rises, till the two are equated at point B. At B, AP is maximised. AP falls beyond the point B. At point C, the TP curve flattens out and therefore, MP = 0. Beyond C, MP is negative and AP is falling. Therefore, in the case of non-proportional return, both MP and AP rise, initially. MP reaches a maximum earlier than AP. When they both are equated, AP is maximised. Finally, there is a situation where both are falling. Depending on the nature of MP and AP, the production process can be divided into three stages - I, II, and III, as shown in Figure. 

Characteristics of the three stages are : 

Stage I: MP > 0, AP rising, thus MP > AP 

Stage II: MP > 0, AP falling, thus MP < AP 

Stage III: MP < 0, AP falling  

In stage I, by adding one more unit of L, the producer can increase the average productivity of all the units. Thus, it would be unwise for the producer to stop production in this stage. 

In stage III, MP < 0, so that by reducing the L input, the producer can increase the total output and save the cost of a unit of L. Therefore, it is impractical for a producer to produce in this stage. 

Hence, stage II represents the economically meaningful range. This is so because here MP > 0 and AP > MP. So that an additional L input would raise the total production. Besides, it is in this stage that the TP reaches a maximum.  


Related Discussions:- Graphical representation of various returns

Determine the returns to scale, Determine the Returns to Scale Use the f...

Determine the Returns to Scale Use the following production function and budget constraint to answer the questions below. Q = L + K                            1000 = 2L +

Sales revenue, how advertisement affects the sales revenue of a form

how advertisement affects the sales revenue of a form

Consumers are willing to pay , "As long as consumers are willing to pay a p...

"As long as consumers are willing to pay a positive price for a good, the larger is the  quantity formed, the greater is the total surplus from trade."  Explain this statement if i

Law of demand, The price of petrol fell during the past year. a. Explain...

The price of petrol fell during the past year. a. Explain why the law of demand applies to petrol just as it does to all other goods and services. b. Explain how the substitu

Determine the is this agent maximizing is utility, 1. Suppose the wage rate...

1. Suppose the wage rate is w = 1. An agent is working 6 hours per day and consumes 5 units of goods per day. Suppose that the agent claims to be indifferent between his current

Mba, Is Indian companies running a risk by not giving attention to cost cut...

Is Indian companies running a risk by not giving attention to cost cutting

MARKET TARGETING STATERGIES, A MANUFACTURING UNIT IS INTERESTED IN DEVELOPI...

A MANUFACTURING UNIT IS INTERESTED IN DEVELOPING A BENEFIT SEGMENTATION OF THE CAMERA MARKET. SUGGEST SOME MAJOR BENEFIT SEGMENT WITH MARKET TARGETING STRATEGIES?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd