Answer to Question #258938 in Microeconomics for Avni Dixit

Question

When APL is positive but declining, the MPL could be (i) declining (ii) zero (iii)

negative or (iv) any of them. Which one is the correct alternatives? Explain with diagram.

Answer 1

When AP_L is positive but declining, the MP_L could be declining.

This can be well elaborated by the graph below. The shape of the curves is because of the law of diminishing returns that says that MP may initially rises due to specialization and eventually falls due to congestion of the labour in the short-run.