CHARACTERISTICS OF THE THREE STAGES
Stage I
Here the Total Physical Product, Average Physical Product and Marginal Physical Product are all increasing. However MPP later starts decreasing. The stage is called stage of increasing returns because either the APP or MPP is increasing.
Stage II
Is a stage of diminishing returns and we have:
Diminishing Average Physical Product
Diminishing MPP and
Increasing Total Physical Product
APP and MPP are declining but since the MPP is still positive, the TPP keeps on rising. The stage where MPP reaches zero, TPP reaches maximum.
Stage III
Marks a change in the direction of TPP curve. The APP continues to diminish the MPP continues to diminish too, but it is negative and is what distinguishes stage IV from II and I. This is the stage of negative returns.