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What do you understand by the third stage of negative returns? |
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Answer» As the amount of a variable factor continues to increase with a constant quantity of the other fixed factors, a stage is reached when the total product declines and the marginal . product becomes negative. This phenomenon of negative returns in stage 3 is due to the fact that the quantity of the variable factors becomes too excessive relative to the fixed factors so that they obstruct each other with the result that the total output falls instead of rising. Besides, too large a number of the variable factors also impairs the efficiency of the fixed factors. The proverb “too many cooks spoil the broth” aptly applies to this situation. In such a situation, a reduction in the units of the variable factors will increase the total output. Just as in the first stage, marginal product of the fixed factors is positive due to its limitedness, in the third stage, the marginal product of the variable factors is negative due to its excessiveness. |
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