CBSE Class 12 Economics Production and Costs Worksheet Set 02

Question. Production function shows technical relationship between physical inputs and output of a commodity
a) Technological relationship between inputs and cost
b) Economic relationship between inputs and output
c) Technological relationship between inputs and output
d) Technological relationship between inputs and price
Answer: C 

Question. How is TPP derived from MPP?
a) Cumulative addition
b) Cumulative subtraction
c) Cumulative product
d) Cumulative division
Answer: A

Very Short Answer Type Questions

Question. When there are diminishing returns to a factor marginal and total products always fall.
Answer : False, only MPP falls, not TPP. In case of diminishing returns to a factor TPP increase at diminishing rate.

Question. What will be the MP when TP is maximum?
Answer : Marginal Product will be zero when Total Product is maximum.

Question. Why TVC curve start from origin?
Answer : TVC is zero at zero level of output.

Question. TPP increases only when MPP increases.
Answer : False, TPP also increases when MPP decreases but remains positive.

Question. Why AFC curve never touches “x‟ axis though lies very close to x axis?
Answer : Because TFC can never be zero.

Question. What is meant by elasticity of supply?
Answer : Price Elasticity of Supply (Es) is a measure of degree of response of supply for a good to change in its price.

Question. Why does the difference between average total cost and average variable cost falls with increase in output?
Answer : It is because average fixed cost goes on falling with increase in output.

Question.  What causes a downward movement along a supply curve?
Answer : Decrease in price.

Question.  What do you mean by marginal revenue?
Answer : Marginal revenue is net additions to total revenue by sale of one additional unit of output.

Question. Define marginal product.
Answer : Marginal product is net addition to total product when one additional unit of variable factor is used.

Question. When does the elasticity of supply of commodity called equal to unity?
Answer : When percentage change in price is equal to percentage change in supply.

Question. State any two conditions of producers equilibrium according to marginal revenue and marginal cost approach.
Answer : 1. MR = MC
2. Rising portion of Marginal cost curve intersects marginal revenue curve.

Question. At what rate average and marginal revenue falls, with fall in per unit price of a good?
Answer : Marginal revenue falls twice the rate of average revenue.

Question. How does a decrease in price of input effect supply curve of the commodity?
Answer : As a result of decrease in price of input production cost falls then producers profit margin will increase so producer will increase the supply of commodity.

Question.  What type of change in price is the cause of upward movement along a supply curve?
Answer : Due to increase in price.

Question. What causes an extension in supply?
Answer : Increase in price of a commodity.

Question. Why does average cost curve and averages variable cost curve never intersect each other?
Answer : Because AFC can never be zero at any level of output.

Question.  What do you mean by individual supply schedule?
Answer : Individual supply schedule is a tabular representation showing various quantities of a commodity which a firm is ready to sell at different prices during a given period of time.

Question. Name two determinants of supply.
Answer : 1. Number of firms
2. Change in technology

Short Answer Type Questions

Question. What are Returns to a Factor? What do you mean by the Law of Diminishing Returns?
Answer : Returns to a Factor is used to explain the behaviour of physical output as only one factor is allowed to vary and all other factors are kept constant. This is a short-run concept. The law of diminishing returns to a factor states that as the variable factor is allowed to vary (increase), keeping all other factors constant, and the Marginal Product first increases, reaches it is the maximum and then declines and even becomes negative.Question. What will be the price elasticity of supply if the supply curve is a positively sloped straight line?
Answer : Es = 1 if the curve starts from the origin point.
Es>1 if the curve starts from the y-axis and
E<1 if the curve starts from the x-axis.

Question. Explain how do the following determine price elasticity of supply:
(i) Nature of the good
(ii) Time period.
Answer : 
1. Nature of Commodity – Elasticity of industrial goods is more than that of agricultural goods. Similarly supply of durable goods e.g. table is more elastic than that of perishable goods e.g. vegetables.
2. Time Period- Generally elasticity of supply is more in the long period than in shorter period of time. The reason is that in the long period, all adjustments to the changed price can be made easily and supply of commodity can be varied accordingly.

Question. How do changes in MR affect TR?
Answer : 
1. If MR increases, TR increases at increasing rate.
2. If MR is constant, TR increases at constant rate.
3. If MR falls, TR increases at diminishing rate.

Question. Explain the relationship between AC & MC with diagram.
Answer : 
(i) When MC < AC, AC falls.
(ii) When MC = AC, AC is minimum.
(iii) When MC > AC, AC rises.
(iv) MC falls & rises faster than AC.
(v) Both are obtained from TC.