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JAMB Economics 2010 Question 20

Question 20

Theory of Production

Average product is less than marginal product when

  1. A.there is constant returns to scale
  2. B.there is increasing returns to scale
  3. C.there is decreasing returns to scale
  4. D.diminishing returns set in.
Show the answer and explanation

Answer: B (there is increasing returns to scale)

Explanation

When each extra unit adds more than the average, the average rises. That happens in the stage of increasing returns.