When the Marginal Product of Labor is negative, we are in stage I for land stage III for labor stage II for land none of the above
Question
When the Marginal Product of Labor is negative, we are in:
- stage I for land
- stage III for labor
- stage II for land
- none of the above
Solution
We are in stage III for labor.
Here's why:
The three stages of production in economics are defined by the law of diminishing returns.
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Stage I: Increasing marginal returns. In this stage, each additional unit of input will produce more output than the previous unit.
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Stage II: Diminishing marginal returns. Here, each additional unit of input will still produce more output, but at a decreasing rate.
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Stage III: Negative marginal returns. In this stage, each additional unit of input will result in less output.
So, when the Marginal Product of Labor is negative, it means that adding more labor actually decreases total output, which is characteristic of stage III.
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