Characteristics of the three stages of diminishing returns, Managerial Economics


Stage I

Here the Total Physical Product, Average Physical Product and Marginal Physical Product are all increasing.  However MPP later starts decreasing.  The stage is called stage of increasing returns because either the APP or MPP is increasing.

Stage II

Is a stage of diminishing returns and we have:

Diminishing Average Physical Product

Diminishing MPP and

Increasing Total Physical Product

APP and MPP are declining but since the MPP is still positive, the TPP keeps on rising.  The stage where MPP reaches zero, TPP reaches maximum.

Stage III

Marks a change in the direction of TPP curve.  The APP continues to diminish the MPP continues to diminish too, but it is negative and is what distinguishes stage IV from II and I.  This is the stage of negative returns.

Posted Date: 11/27/2012 7:18:26 AM | Location : United States

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