Which of the following correctly represents the relationship between average product and marginal product?

1. As long as marginal product is less than average product, average product rises.

2. When marginal product is equal to average product, then average product is minimum.

3. When marginal product is less than average product, average product falls.

The correct answer is Only 3.

Key Points

• Marginal Product (MP) is the additional output produced when one more unit of input is added, while the Average Product (AP) is the total output produced divided by the number of units of input used.
• When the Marginal Product (MP) equals the Average Product (AP), it indicates that AP is at its maximum point.
• If MP is greater than AP, the AP will rise because the additional output from the extra input is higher than the current average.
• If MP is less than AP, the AP will fall because the additional output from the extra input is lower than the current average.

Additional Information

• Law of Diminishing Marginal Returns: States that as more units of a variable input are added to fixed inputs, the additional output produced from each new unit of input eventually decreases.
• Production Function: A mathematical representation showing the relationship between input quantities and the quantity of output produced.
• Short Run vs. Long Run: In the short run, at least one input is fixed, while in the long run, all inputs can be varied.
• Isoquants: Curves that represent combinations of inputs that produce the same level of output, used in the analysis of production efficiency.
• Returns to Scale: Describes how output changes when the scale of all inputs is changed proportionally, indicating increasing, constant, or decreasing returns to scale.