Question

Given below are two statements:
Statement (I): So long as MPP increases, APP will also increase and it will continue to do so even though MPP starts to fall so long as MPP is greater than APP.
Statement (II): The value of MVP declines throughout stage II, but nevertheless, it will pay to intensify production so long as the MVP of the input is less than the cost of a unit of input.
In light of the above statements, choose the most appropriate answer from the options given below:

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

Hint:

Remember the optimization rule: profit is maximized when Marginal Value Product equals the unit price of the input ($MVP = P_x$). It is profitable to expand input use as long as $MVP > P_x$.

Answer 1

The Correct Option is C