Two friends Pari, Tanishtha and Shweta were discussing economics. Pari said that :As long as the AP increases, MP is greater than AP and MP can either rise or fall.
Tanishtha objected by saying that if MP is greater than AP then how can it fall?
Shweta replied: Pari is correct.
Who do you think is right?
Answer & explanation
Correct answer: option 4
The correct answer is option 4: Pari and Shweta
Explanation:
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Pari’s Statement: "As long as AP increases, MP is greater than AP and MP can either rise or fall." (Correct)
- AP (Average Product) increases when MP (Marginal Product) is greater than AP.
- However, MP does not necessarily have to keep rising—it can rise initially and then start falling while still remaining above AP.
- This is a key characteristic of MP and AP relationships in production theory.
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Tanishtha’s Objection: "If MP is greater than AP, how can it fall?" (Incorrect reasoning)
- MP can be greater than AP but still be decreasing.
- Example:
- If MP starts at 15 and AP is 10, AP will rise.
- Later, MP might decline to 12, but since it is still greater than AP, AP will continue increasing.
- Once MP falls below AP, AP will start decreasing.
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Shweta’s Reply: "Pari is correct." (Correct)
- Since Pari’s explanation is correct, Shweta is also correct in supporting her.