When marginal costs are rising
A) marginal physical product is also rising.
B) marginal physical product is falling.
C) average physical product is rising.
D) average physical product is falling.

Question

Quizplus · Accepted Answer

When marginal costs are rising, it means that each additional unit of output is costing more to produce. This usually happens when the production process has reached its capacity limit and it becomes more expensive to produce additional units. As a result, marginal physical product (MPP) is falling. This is because each additional unit of input (e.g. labor or capital) is now producing less output, due to diminishing returns. Average physical product (APP) may be rising or falling depending on the relationship between MPP and total output. However, rising marginal costs usually indicate that APP is also falling, because the additional costs of producing extra units are dragging down the average.

When Marginal Costs Are Rising