What is Stage 2?

Stage two is the period where marginal returns start to decrease. Each additional variable input will still produce additional units but at a decreasing rate. This is because of the law of diminishing returns: Output steadily decreases on each additional unit of variable input, holding all other inputs fixed.

How many stages are there in a production function?

To simplify the interpretation of a production function, it is common to divide its range into 3 stages. In Stage 1 (from the origin to point B) the variable input is being used with increasing output per unit, the latter reaching a maximum at point B (since the average physical product is at its maximum at that point).

How does production process output change over time?

Table 13.1 and Fig. 13.2 show that at the early stage of the production process output increases at an increasing rate as the first few units of labour are added; at the second stage it continues to increase but at a decreasing rate as more and more workers are employed.