Question

Given below are two statements:
Statement (I) : It is because of the law of variable proportions that MPP curve makes an inverted-U.
Statement (II) : Diminishing returns to a factor must lead to a fall in Marginal Physical Product (MPP) as well as Total Physical Product (TPP).
In light of the above statements, choose the most appropriate answer from the options given below:

• A. Both Statement (I) and Statement (II) are correct.
• B. Both Statement (I) and Statement (II) are incorrect.
• C. Statement (I) is correct but Statement (II) is incorrect.
• D. Statement (I) is incorrect but Statement (II) is correct.

Hint:

- When MPP is decreasing but positive, TPP is increasing at a decreasing rate.
- TPP decreases only when MPP becomes negative (Phase 3 of the Law of Variable Proportions).

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
The Law of Variable Proportions (short-run production theory) explains how output changes as increasing units of a variable factor are combined with fixed factors.
The behavior of Total Physical Product (TPP), Average Physical Product (APP), and Marginal Physical Product (MPP) is governed by this law.

Step 2: Detailed Explanation:
Let us analyze both statements:
- Statement (I):
The Law of Variable Proportions states that as more units of a variable factor are added, output initially increases at an increasing rate, then increases at a decreasing rate, and eventually declines.
Correspondingly, the Marginal Physical Product (MPP) initially rises, reaches a maximum, and then begins to fall, forming an inverted-U shape.
Therefore, Statement (I) is correct.
- Statement (II):
Diminishing returns start when the MPP begins to decline.
As long as MPP is declining but remains positive, the Total Physical Product (TPP) continues to rise (at a decreasing rate).
TPP only begins to fall when MPP becomes negative.
Thus, diminishing returns do not immediately cause a fall in TPP.
Therefore, Statement (II) is incorrect.
Statement (I) is correct but Statement (II) is incorrect.

Step 3: Final Answer:
The correct option is (C).