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Stage of operation

In stage 1, the MP of the fixed factor is negative. At this stage, a producer would not be making the best use of the fixed factors nor does he increase production by introducing variable factors. Thus, a rational producer will not stop at stage 1, but will expand further. In stage 3, the marginal product of the variable factor is negative. A producer, thus, can always increase his output by reducing the units of the variable factor.
Thus, a producer would wish to produce in stage 2 where both, the marginal product and average product of the variable factors are diminishing. Stage 2 represents the range of rational production decisions.

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