Question

In a production function at a particular point of resource usage, TPP, APP and MPP are 30, 6 and 5 respectively. The Ep at that point is:

• A. 5.00
• B. 6.00
• C. 0.83
• D. 1.20

Hint:

The value of Total Physical Product (TPP) is extra information provided to test your conceptual clarity. The formula for elasticity of production requires only MPP and APP.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
The Elasticity of Production ($E_p$) measures the percentage change in output in response to a percentage change in input usage.

Step 2: Key Formula or Approach:
The elasticity of production can be mathematically expressed as the ratio of Marginal Physical Product (MPP) to Average Physical Product (APP):
\[ E_p = \frac{\text{MPP}}{\text{APP}} \]

Step 3: Detailed Explanation:
We are given the following values:
- Total Physical Product ($\text{TPP}$) $= 30$
- Average Physical Product ($\text{APP}$) $= 6$
- Marginal Physical Product ($\text{MPP}$) $= 5$
Substituting the values of MPP and APP into our formula:
\[ E_p = \frac{5}{6} \approx 0.833 \]
An elasticity of production of $0.83$ indicates that the production process is in Stage II of the classical production function (where $0 < E_p < 1$), which is the rational stage of production.
Final Answer:
The value of $E_p$ is approximately $0.83$, matching Option (C).