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Q: As stated by the law of variable proportions, as additional units of a variable factor are combined with a given level of fixed factors and technology, the marginal product of the variable factor _____.
  • A. increases sharply
  • B. first declines and then increases
  • C. declines sharply
  • D. first increases and then declines
Correct Answer: Option D - Law of variable proportion operates when firm expands its income in a short-run. In the first stage production increases only at an increasing rate, but after this stage, with addition of extra unit of a variable factor (labour), it will start declining (M.P). Thus option 4 is correct.
D. Law of variable proportion operates when firm expands its income in a short-run. In the first stage production increases only at an increasing rate, but after this stage, with addition of extra unit of a variable factor (labour), it will start declining (M.P). Thus option 4 is correct.

Explanations:

Law of variable proportion operates when firm expands its income in a short-run. In the first stage production increases only at an increasing rate, but after this stage, with addition of extra unit of a variable factor (labour), it will start declining (M.P). Thus option 4 is correct.