Under the law of variable proportions, a rational producer will operate in:

Correct answer: D) Stage II, where both average and marginal products of the variable factor are falling but marginal product is positive

Explanation

In Stage I the fixed factor is under-utilised and AP of the variable factor is still rising, so it pays to add more of it. In Stage III MP is negative, so adding the variable factor reduces total output. Hence the rational stage is Stage II, from maximum AP to the point where MP is zero.