Graphical representation of various returns, Microeconomics

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.  

Posted Date: 10/26/2012 6:25:16 AM | Location : United States

Related Discussions:- Graphical representation of various returns, Assignment Help, Ask Question on Graphical representation of various returns, Get Answer, Expert's Help, Graphical representation of various returns Discussions

Write discussion on Graphical representation of various returns
Your posts are moderated
Related Questions

how to compute the price of a laptop increase of 20% and there is a 40% drop in the aquantity demanded

Closesubstitute goods: The number of closesubstitute goods The more substitutes of good has and the more close the substitutes are, the more elastic the demand for the good. Fo

Determinants of reserve price

Public Expenditure Trends: The expenditure pattern of the Government sector has been generally guided by the concern about the role of the State in the economy, both as invest

is country beter off with ban on imports?

Define the Production Possibilities Curve and explain the basic economics concepts using the PPC. Explain the factors tht shift the PPC outwards

Determinants of Private Demand for Education Rates of return on investment in education is only one of the factors determining the demand for private investment though it is

Disposable Personal Income The amount of cash remaining after taxes are removed that an individual has the opportunity to spend.