RBSE Solutions Class 12 Economics Chapter 9 Concept of Revenue

RBSE Class 12 Economics Chapter 9 Practice Questions

RBSE Class 12 Economics Chapter 9 Multiple Choice Questions

 

Question 1. By multiplying the amount of quantity sold with its price, we get:
(a) Average Revenue
(b) Total Revenue
(c) Marginal Revenue
(d) Average Output
Answer: (b) Total Revenue
In simple words: When you multiply how much you sold by the price of each item, you find out the total money you earned from those sales. This is your overall income from selling.

🎯 Exam Tip: Remember that "Total Revenue" is simply the total money a firm receives from selling its products, calculated as Price x Quantity.

 

Question 2. If total quantity sold in a month is 200 at Rs. 10 per unit, then AR will be :
(a) 50
Answer: (a) 10
Total Revenue \( = \text{Quantity} \times \text{Price} = 200 \times \text{Rs. } 10 = \text{Rs. } 2000 \)
Average Revenue \( (\text{AR}) = \frac{\text{Total Revenue}}{\text{Quantity Sold}} \)
\( \text{AR} = \frac{\text{Rs. } 2000}{200} \)
\( \implies \text{AR} = \text{Rs. } 10 \)
In simple words: Average Revenue is found by dividing the total money you earned by the number of items you sold. Here, if you sold 200 items for Rs. 10 each, you earned Rs. 2000 in total. Dividing Rs. 2000 by 200 items gives you an average of Rs. 10 per item.

🎯 Exam Tip: Always remember the formula for Average Revenue (AR = TR/Q) and apply it carefully with the given values.

 

Question 3. In which market, AR = MR?
(a) Perfect competition
(b) Imperfect competition
(c) Monopoly
(d) In all markets
Answer: (a) Perfect competition
In simple words: In a market where there are many buyers and sellers and products are all the same, the average money earned per unit is equal to the extra money earned from selling one more unit.

🎯 Exam Tip: Understanding the relationship between AR and MR is crucial for market structures; AR=MR is a defining characteristic of perfect competition.

 

Question 4. In perfect competition, which curve represents price line?
(a) AR = MR
(b) AR > MR
(c) TR
(d) None of the options
Answer: (a) AR = MR
In simple words: In a market with perfect competition, the line that shows the price is the same line as the Average Revenue (AR) curve and the Marginal Revenue (MR) curve. This means AR and MR are equal to the market price.

🎯 Exam Tip: Remember that in perfect competition, firms are price-takers, and thus Price = AR = MR, which is represented by a horizontal line.

 

Question 5. In monopoly market, relationship between AR and MR is :
(a) AR = MR
(b) AR > MR
(c) AR < MR
(d) AR × MR
Answer: (b) AR > MR
In simple words: In a monopoly, a single seller must lower their price to sell more units. This means the extra money from selling one more unit (Marginal Revenue) will always be less than the average money earned per unit (Average Revenue).

🎯 Exam Tip: For monopoly and imperfect competition, the AR curve is downward sloping, and the MR curve lies below it, indicating AR > MR.

RBSE Class 12 Economics Chapter 9 Very Short Answer Type Questions

 

Question 1. Write the formula for AR.
Answer: The formula for Average Revenue (AR) is:
\( \text{AR} = \frac{\text{Total Revenue (TR)}}{\text{Quantity Sold (Q)}} \)
This formula helps calculate the average money a firm earns per unit sold.
In simple words: To find Average Revenue, you divide the total money you made from sales by the total number of items you sold.

🎯 Exam Tip: Always specify the full forms (Total Revenue, Quantity Sold) along with the symbols (TR, Q) when writing economic formulas.

 

Question 3. Explain revenue.
Answer: Revenue is the total money a business gets from selling its goods or services. It is the income a firm receives from the sale of its products. This is the main way businesses earn money.
In simple words: Revenue is simply all the money a company gets from selling things or providing services.

🎯 Exam Tip: Clearly define revenue as the total income from sales, differentiating it from profit (which accounts for costs).

 

Question 4. What is the shape of AR and MR curve in perfect competition?
Answer: In a market with perfect competition, the Average Revenue (AR) and Marginal Revenue (MR) curves have the same shape. They are straight lines that run parallel to the X-axis, meaning they are horizontal. This shows that the price remains constant for all units sold.
In simple words: In perfect competition, the AR and MR lines are flat and horizontal on a graph, running alongside the X-axis.

🎯 Exam Tip: Visualize these curves as horizontal lines, reflecting that a firm in perfect competition is a price-taker and can sell any quantity at the market price.

 

Question 5. Which curve represents price in perfect competition market?
Answer: In a perfect competition market, the Average Revenue (AR) curve represents the price. Under these conditions, the Average Revenue, Marginal Revenue (MR), and the Price (P) are all equal: \( \text{AR} = \text{MR} = \text{P} \). This is because each extra unit sold brings in the same price as the average.
In simple words: In perfect competition, the AR curve is the same as the price line. AR, MR, and Price are all equal.

🎯 Exam Tip: Remember that in perfect competition, the AR curve acts as the firm's demand curve and also represents the market price.

RBSE Class 12 Economics Chapter 9 Short Answer Type Questions

 

Question 1. Explain AR and MR with the help of an imaginary table.
Answer:
Average Revenue (AR) is the money a firm earns per unit of output sold. Marginal Revenue (MR) is the additional money gained from selling one more unit. Here is an imaginary table to show their relationship:

From this table, we can see that the total revenue increases at a slowing rate. Both average revenue and marginal revenue continuously fall. However, the marginal revenue falls more sharply than the average revenue. This pattern typically occurs in markets where a firm has some market power and must lower its price to sell more units.
In simple words: The table shows that total sales money grows slower over time. The average money earned per item and the extra money from each new item both keep going down, but the extra money drops faster.

🎯 Exam Tip: When explaining AR and MR with a table, ensure your explanation clearly links the changes in revenue figures to the underlying economic principles.

 

Question 3. Calculate AR and MR from the following table:

Answer: We calculate Average Revenue (AR) by dividing Total Revenue (TR) by the Output (Q). Marginal Revenue (MR) is calculated as the change in Total Revenue divided by the change in Output \( (\text{MR} = \Delta \text{TR} / \Delta \text{Q}) \). Here is the completed table:
Notice that when Total Revenue reaches its maximum at 60 (for 4 and 5 units), Marginal Revenue becomes zero. When Total Revenue starts to fall (for 6 units), Marginal Revenue becomes negative.
In simple words: We find AR by dividing total money by units sold. We find MR by seeing how much extra money we get from selling one more unit. The table shows these values for different units.

🎯 Exam Tip: Always show your calculations for each AR and MR value clearly. Pay attention to how MR becomes zero when TR is maximized, and negative when TR begins to fall.

 

Question 4. Calculate TR and MR from the following table:

Answer: We calculate Total Revenue (TR) by multiplying Average Revenue (AR) by the Output (Q). Marginal Revenue (MR) is calculated as the change in Total Revenue divided by the change in Output \( (\text{MR} = \Delta \text{TR} / \Delta \text{Q}) \). Here is the completed table:
This table shows how Total Revenue is calculated from Average Revenue and how Marginal Revenue changes with each additional unit sold. Observe that when Average Revenue is rising (from 5 to 15), Marginal Revenue is higher than Average Revenue, but when Average Revenue falls, Marginal Revenue drops below it.
In simple words: We calculate total money earned by multiplying average money per item by the number of items. Then, we find the extra money from selling each new item by looking at the change in total money.

🎯 Exam Tip: Pay close attention to the starting point and implied previous revenue for MR calculations; sometimes, you might need to assume an initial TR of zero for the first unit shown.

RBSE Class 12 Economics Chapter 9 Long Answer Type Questions

 

Question 1. Explain the relationship between Total Revenue, Average Revenue and Marginal Revenue with the help of an imaginary table and diagrams.
Answer: Total Revenue (TR) is the total money a firm receives from selling its output. Average Revenue (AR) is the revenue per unit sold \( (\text{AR} = \text{TR/Q}) \), and Marginal Revenue (MR) is the additional revenue from selling one more unit \( (\text{MR} = \Delta \text{TR} / \Delta \text{Q}) \). The relationship between these three can be explained using a table and a diagram, especially in markets with imperfect competition (like monopoly or monopolistic competition) where firms have some control over price. In such markets, to sell more units, the firm must lower its price.

Here is an imaginary table demonstrating this relationship:

Based on the table and diagram, here are the key relationships:

1. Average Revenue (AR), which is the price of the product, consistently decreases. This happens because the firm must lower the price to sell more units.
2. Marginal Revenue (MR) also continuously decreases. The rate at which MR falls is steeper than the rate at which AR falls.
3. Total Revenue (TR) steadily increases up to a certain point but at a diminishing rate. After this point, if MR becomes negative, TR starts to fall.
4. Average Revenue is always positive, but Marginal Revenue can become zero or even negative. When MR is zero, TR is at its maximum. When MR is negative, TR starts to decrease. The relationship where MR falls faster than AR is key to understanding how firms with market power make pricing and output decisions.

In simple words: The table and graph show that as a firm sells more in a market where it controls prices, it has to lower prices. So, the average money it gets per item goes down. The extra money it gets from each new item also goes down, and it drops even faster than the average. Total money earned goes up for a while, but then it can start to fall if the extra money from new sales becomes negative.

🎯 Exam Tip: When explaining AR and MR with a table, ensure your explanation clearly links the changes in revenue figures to the underlying economic principles.

 

Question 2. What is perfect competition market? Why is demand curve for a firm perfectly elastic in perfect competition? Explain.
Answer:
Perfect Competition Market: This is a market situation where a very large number of producers sell a uniform product to a very large number of buyers. Each seller makes up a tiny part of the total supply and has no power over the market price. Similarly, each buyer buys a tiny part of the total supply and also has no power over the market price. For example, local agricultural markets (like rice mandis where goods are sold by auction) can be considered close to perfect competition.

Demand Curve for a Firm is Perfectly Elastic: In perfect competition, the demand curve for an individual firm is perfectly elastic. This means that a firm can sell any amount of its product at the current market price. If the firm tries to charge a higher price, it will not sell any units because buyers can easily find the exact same product from many other sellers at the market price. If the firm lowers its price, all buyers will flock to it, but it cannot supply the entire market demand. Therefore, to maximize profit, the firm sells at the market price. The demand curve for an individual firm is a horizontal straight line parallel to the X-axis, showing that the price remains constant regardless of the quantity sold. This perfectly elastic demand curve implies that individual firms are "price-takers," meaning they must accept the prevailing market price.

In simple words: Perfect competition is a market with many small sellers and buyers of identical products. The demand curve for one firm is flat because it can sell as much as it wants at the market price, but nothing if it tries to charge even a little more.

🎯 Exam Tip: When defining perfect competition, always mention the "large number of buyers/sellers," "homogeneous product," and "price-taker" characteristics. For elasticity, explain why a firm cannot influence price.

RBSE Class 12 Economics Chapter 9 Other Important Questions and Answers

RBSE Class 12 Economics Chapter 9 Multiple-Choice Questions

 

Question 1. Formula for calculating Marginal Revenue:
(a) \( \text{MR} = \frac{\Delta TR}{\Delta Q} \)
(b) \( \text{MR} = \frac{AR}{Q} \)
(c) \( \text{MR} = \frac{TR}{Q} \)
(d) None of the options
Answer: (a) \( \text{MR} = \frac{\Delta TR}{\Delta Q} \)
In simple words: Marginal Revenue is found by dividing the change in total earnings by the change in the number of items sold. This tells you how much extra money you get from selling one more unit.

🎯 Exam Tip: Distinguish clearly between the formulas for AR, MR, and TR; MR always involves a "change" or "delta" (Δ) in total revenue.

 

Question 3. Firm in Perfect Competition Market:
(a) is price determiner
(b) accepts the price
(c) can influence the price
(d) None of the options
Answer: (b) accepts the price
In simple words: In a perfect competition market, individual businesses cannot set their own prices; they must sell their products at the price already decided by the market.

🎯 Exam Tip: The key characteristic of firms in perfect competition is their role as "price takers," having no power to influence the market price.

 

Question 4. Specialty of Monopoly competition:
(a) There are many sellers in market.
(b) There are two-four sellers in the market.
(c) There is only one seller in the market.
(d) None of the options
Answer: (c) There is only one seller in the market.
In simple words: The main feature of a monopoly is that there is only one company selling a specific product or service, meaning there are no other sellers.

🎯 Exam Tip: The defining characteristic of a monopoly is the presence of a single seller who controls the entire market supply.

 

Question 5. A firm in the imperfect competition is:
(a) Price determiner
(b) May affect the price
(c) The value is acceptable
(d) None of the options
Answer: (a) Price determiner
In simple words: In a market with imperfect competition, a firm has some power to decide or influence the price of its product, unlike in perfect competition.

🎯 Exam Tip: Firms in imperfect competition have some market power, allowing them to act as "price makers" or "price determiners" to a certain extent.

 

Question 7. Meaning of Revenue :
(a) The firm's profit
(b) The firm's sales
(c) The cost of the goods sold by the firm
(d) None of the options
Answer: (b) The firm's sales
In simple words: Revenue means the total amount of money a business gets from selling its products or services, representing its total sales income.

🎯 Exam Tip: Clearly differentiate between "revenue" (total sales income) and "profit" (revenue minus costs).

 

Question 8. Meaning of Marginal Revenue:
(a) The price of goods
(b) The cost of goods
(c) Additional proceeds from the sale of an additional unit
(d) None of the options
Answer: (c) Additional proceeds from the sale of an additional unit
In simple words: Marginal Revenue is the extra money a company earns when it sells just one more unit of its product.

🎯 Exam Tip: Remember that "marginal" in economics always refers to the "additional" or "extra" effect of one more unit.

 

Question 9. If a firm sells 10 units of commodity it gets Rs. 50 and when it sells 11 units, it gets Rs. 54 then the marginal revenue of 11 units is :
(a) Rs. 54
(b) Rs. 50
(c) Rs. 4
(d) None of the options
Answer: (c) Rs. 4
Marginal Revenue \( = \text{Total Revenue from 11 units} - \text{Total Revenue from 10 units} \)
\( = \text{Rs. } 54 - \text{Rs. } 50 \)
\( \implies \text{Marginal Revenue} = \text{Rs. } 4 \)
In simple words: The extra money earned from selling the 11th unit is the difference between the total money from 11 units and the total money from 10 units, which is Rs. 4.

🎯 Exam Tip: Marginal revenue is calculated as the change in total revenue when quantity changes by one unit, i.e., \( MR = TR_n - TR_{n-1} \).

RBSE Class 12 Economics Chapter 9 Very Short Answer Type Questions

 

Question 1. Write down the definition of revenue.
Answer: According to Dooley, a firm's revenue refers to the total money it receives from selling its products or services. It can be seen as the sales receipts a firm gets from its output. Revenue is a key indicator of a firm's activity before any costs are considered.
In simple words: Revenue is all the money a business gets from selling its products.

🎯 Exam Tip: When defining terms, it's good to include a relevant economist's definition if the question asks for a formal one.

 

Question 2. Define average revenue.
Answer: Average revenue (AR) is the amount of money a firm earns per unit of product sold. It is calculated by dividing the total revenue by the total number of units produced and sold. This helps a firm understand the average price it is receiving per unit sold.
In simple words: Average revenue is how much money you get for each item sold, found by dividing total sales money by the number of items.

🎯 Exam Tip: The formula for Average Revenue \( (\text{AR} = \text{TR/Q}) \) is essential and should be remembered for calculations.

 

Question 3. What are the two characteristics of perfect competition?
Answer: Two main characteristics of perfect competition are:
1. Price Taker: Each firm in the market must accept the market price as given; it cannot decide its own price. 2. Homogeneous Products: All products sold by different firms are identical, meaning buyers cannot tell the difference between one firm's product and another's. These characteristics ensure that no single buyer or seller can influence the market price.
In simple words: Two features of perfect competition are that companies just accept the market price, and all products are exactly the same.

🎯 Exam Tip: Remember that "homogeneous product" implies perfect substitutes, making it impossible for a firm to charge a higher price.

 

Question 4. What is meant by total revenue? Write its formula.
Answer: Total revenue (TR) is the total amount of money a firm gets from selling all its goods or services. It is calculated by multiplying the total quantity of goods sold (Q) by the price per unit (P).
The formula is: \( \text{TR} = \text{Q} \times \text{P} \)
Where, Q = quantity of sale, and P = price. Total revenue is crucial for assessing a firm's overall sales performance before accounting for costs.
In simple words: Total revenue is the full amount of money a company earns from all its sales. The formula is simply the number of items sold multiplied by their price.

🎯 Exam Tip: Always clearly state the full terms (Quantity, Price) for the symbols used in economic formulas.

 

Question 6. Mention two features of monopoly market?
Answer: Here are two features of a monopoly market:
1. Single Seller: In a monopoly, there is only one producer or seller of a specific product. 2. No Close Substitutes: The product sold by the monopolist has no close substitutes, meaning buyers have no alternative options. These characteristics give the monopolist significant power to influence market prices.
In simple words: A monopoly market has only one seller of a product, and there are no other similar products for buyers to choose from.

🎯 Exam Tip: Emphasize "single seller" and "no close substitutes" as these are the fundamental defining points of a monopoly.

 

Question 7. Can the average revenue be negative?
Answer: No, average revenue can never be negative. Since a firm always sells goods at a positive price, the average revenue will always be positive. Even if no units are sold, average revenue is typically considered undefined or zero, not negative.
In simple words: No, average revenue cannot be negative because you always sell items for a positive price.

🎯 Exam Tip: Remember that negative revenue would imply a firm is paying customers to take its products, which is not how sales revenue works.

 

Question 8. Which concept of revenue is called price?
Answer: Average Revenue (AR) is the concept of revenue that is also referred to as price. Average revenue shows the rate at which a product is sold per unit. This is because average revenue represents the per-unit earning, which is exactly what price signifies.
In simple words: Average Revenue is also known as the price of the product.

🎯 Exam Tip: In economics, remember the identity: Price = Average Revenue. This is fundamental across all market structures.

 

Question 9. What is marginal revenue? Write its formula.
Answer: Marginal Revenue (MR) is the additional money a firm gains in total revenue from selling one more unit of a product. It represents the change in total revenue that occurs when one extra unit of a good is sold.
The formula for Marginal Revenue is:
\( \text{MR} = \frac{\Delta \text{TR}}{\Delta \text{Q}} \)
Where \( \Delta \text{TR} \) is the change in total revenue and \( \Delta \text{Q} \) is the change in quantity sold. Firms use marginal revenue to decide if producing and selling an additional unit will increase their total profit.
In simple words: Marginal revenue is the extra money you get when you sell one more item. You find it by dividing the change in total sales money by the change in items sold.

🎯 Exam Tip: The "delta" symbol \( \Delta \) is critical in the MR formula, indicating "change" or "difference" in the respective variables.

 

Question 10. What do you mean by oligopoly?
Answer: Oligopoly is a market structure that is a key type of imperfect competition. In an oligopoly, only a few large firms dominate the market. These firms can produce either identical products (homogeneous) or slightly different products (close substitutes). These firms often engage in strategic behavior, considering their rivals' actions when making their own decisions.
In simple words: Oligopoly is a market where only a few big companies sell similar products, and their decisions affect each other.

🎯 Exam Tip: The defining feature of an oligopoly is "few sellers," which leads to interdependence among firms in their pricing and output decisions.

 

Question 12. Explain monopoly market.
Answer: A monopoly market is a market structure defined by having a single seller who offers a unique product. In such a market, the seller faces no competition because they are the only provider of those goods and there are no close substitutes available. The monopolist therefore has the power to set the price for their goods. This lack of competition allows the monopolist to set its own prices, rather than being a price-taker.
In simple words: A monopoly is a market where only one company sells a special product with no competition, so they can set the price.

🎯 Exam Tip: Highlight the "single seller" and "unique product with no close substitutes" as the core elements of a monopoly market.

 

Question 13. What do you understand by market of imperfect competition?
Answer: Imperfect competition describes a market situation that falls between a pure monopoly and perfect competition. In this type of market, there are fewer buyers and sellers compared to perfect competition, and participants may not have full information about the market. Firms in imperfect competition have some ability to influence prices. This market structure is more common in the real world than perfect competition or pure monopoly.
In simple words: Imperfect competition is a market type that is not perfectly competitive or a pure monopoly, where firms have some say over prices, and buyers/sellers are fewer and less informed.

🎯 Exam Tip: Remember that imperfect competition covers various market structures like monopolistic competition and oligopoly, all characterized by some degree of market power.

 

Question 14. What do you mean by market of perfect competition?
Answer: Perfect competition describes a market situation characterized by a large number of buyers and sellers. All firms in this market sell identical or homogeneous products. Because of the large number of participants and identical products, individual firms must accept the price that is determined by the overall market forces of supply and demand. This ensures that no single participant can influence the market price, making all firms "price-takers."
In simple words: Perfect competition is a market with many buyers and sellers, all selling the exact same product, so firms must sell at the market price.

🎯 Exam Tip: Key features of perfect competition include many buyers and sellers, homogeneous products, free entry and exit, and perfect information.

 

Question 15. What is the relation between marginal revenue and average revenue under perfect competition?
Answer: Under perfect competition, the relationship between marginal revenue (MR) and average revenue (AR) is very straightforward: they are equal. If the price of a product (which is also the average revenue) remains constant when more units are sold, then the additional revenue gained from selling one more unit (marginal revenue) will be exactly the same as the average revenue. This equality \( (\text{AR}=\text{MR}) \) is a hallmark of perfectly competitive markets and directly results from firms being price-takers.
In simple words: In perfect competition, the extra money from selling one more item (MR) is always the same as the average money earned per item (AR).

🎯 Exam Tip: Remember that Price = AR = MR in perfect competition. This relationship simplifies revenue analysis for individual firms in such markets.

 

Question 16. What is the shape of marginal revenue curve and average revenue curve under perfect competition?
Answer: Under perfect competition, both the marginal revenue (MR) curve and the average revenue (AR) curve have a specific shape: they are horizontal straight lines. These lines run parallel to the X-axis. This horizontal shape reflects the fact that a firm can sell any quantity at the constant market price without affecting it.
In simple words: In perfect competition, the MR and AR curves are flat, straight lines that run side-by-side with the X-axis on a graph.

🎯 Exam Tip: Drawing these curves as a single horizontal line at the market price is crucial for illustrating perfect competition.

 

Question 17. What is the real and practical concept of market?
Answer: In practical terms, the financial health of any firm is assessed by comparing its average revenue (the money earned per unit) and its average cost (the cost per unit). When these two figures are equal, the firm is considered to be in a normal profit position. This means it is covering all its costs, including the opportunity cost of the entrepreneur, which is a realistic outcome in many markets.
In simple words: In practice, a market helps a company see if it's earning a normal profit by comparing how much money it makes per item to how much it costs to make each item.

🎯 Exam Tip: While the question asks for a "concept of market," the provided answer focuses on "normal profit," so ensure your response connects the market conditions to a firm's financial status.

 

Question 19. What is the shape of demand curve in oligopolistic market?
Answer: In an oligopoly market, the shape of the demand curve for an individual seller is generally uncertain and often described as "kinked." This distorted shape shows the stability of prices in the market. The kinked demand curve arises because firms anticipate different reactions from rivals to price increases versus price decreases.
In simple words: In an oligopoly, the demand curve for one company is not a smooth line; it's uncertain and has a "kink," showing that prices don't change easily.

🎯 Exam Tip: Mentioning the "kinked demand curve" is key to accurately describing the demand curve in an oligopolistic market.

 

Question 20. In which market AR and MR are equal?
Answer: Average Revenue (AR) and Marginal Revenue (MR) are equal in a perfect competition market. This occurs because firms in perfect competition are price-takers and can sell any quantity at the constant market price.
In simple words: AR and MR are equal in a market with perfect competition.

🎯 Exam Tip: Always remember that AR=MR=P is a defining characteristic exclusive to perfect competition.

 

Question 21. What do we get if the value of the item is multiplied with the quantity of sold item?
Answer: If you multiply the value (price) of an item by the quantity of items sold, you get the Total Revenue (TR). This calculation forms the basis for determining a firm's gross income from its sales activities.
In simple words: Multiplying an item's price by the number of items sold gives you the total money earned, called Total Revenue.

🎯 Exam Tip: The formula for Total Revenue \( (\text{TR} = \text{Price} \times \text{Quantity}) \) is fundamental to all revenue calculations.

 

Question 22. What is the shape of average income curve in the position of perfect competition?
Answer: In a market with perfect competition, the average income curve (which is the Average Revenue curve) is a horizontal straight line. It runs parallel to the X-axis. This horizontal shape signifies that the market price is constant for all quantities sold by an individual firm.
In simple words: In perfect competition, the average income line is flat and straight, running alongside the X-axis.

🎯 Exam Tip: Understand that the horizontal AR curve in perfect competition reflects the firm's status as a price-taker.

 

Question 23. What will be the average revenue, when the total revenue of firm 'A' is Rs. 50,000 and the quantity of sold commodity is 1,000 units.
Answer: To find the Average Revenue (AR), we divide the Total Revenue (TR) by the Quantity Sold (Q).
Given: Total Revenue \( = \text{Rs. } 50,000 \)
Quantity Sold \( = 1,000 \text{ units} \)
Formula: \( \text{Average Revenue (AR)} = \frac{\text{Total Revenue (TR)}}{\text{Quantity (Q)}} \)
\( \text{AR} = \frac{\text{Rs. } 50,000}{1,000} \)
\( \implies \text{AR} = \text{Rs. } 50 \)
So, the average revenue will be Rs. 50. This calculation helps a firm understand the average price it earned for each unit sold.
In simple words: To get average revenue, divide the total money earned (Rs. 50,000) by the number of items sold (1,000 units), which gives Rs. 50 per unit.

🎯 Exam Tip: Always show the formula and clear steps in numerical problems to ensure full marks and avoid calculation errors.

 

Question 25. How do marginal revenue and average revenue curves look like under monopoly and monopolistic competition?
Answer: Under both monopoly and monopolistic competition, the average revenue (AR) curve and the marginal revenue (MR) curve typically slope downwards from left to right. This downward slope indicates that to sell more units, the firm must lower its price. The MR curve always lies below the AR curve in these market structures, reflecting that the firm must lower its price to sell more units.
In simple words: In monopoly and monopolistic competition, both the AR and MR curves go downwards from left to right on a graph.

🎯 Exam Tip: Remember that downward-sloping AR and MR curves are characteristic of firms with some market power, where price and AR fall as more units are sold.

 

Question 26. When average revenue is constant, what is the state of marginal revenue?
Answer: When average revenue (AR) remains constant, then marginal revenue (MR) is also constant and equal to AR. This constant state implies that each additional unit sold adds the same amount to total revenue as the average revenue per unit.
In simple words: If average revenue stays the same, then marginal revenue also stays the same.

🎯 Exam Tip: This situation typically occurs in perfect competition, where the firm is a price-taker, and AR=MR=Price is a constant horizontal line.

RBSE Class 12 Economics Chapter 9 Short Answer Type Questions

 

Question 1. Explain the meaning of revenue.
Answer: Revenue is the total money or value that a producer or firm receives from selling its products or services. This total amount includes both the cost of producing the item and the profit made from it. A seller is very interested in the demand for their product because the revenue they get depends heavily on how much demand there is. From the seller's point of view, the demand curve that consumers face for a product is essentially the average revenue curve, as the price consumers pay becomes the revenue for the seller. Understanding revenue is the first step in analyzing a firm's financial performance before considering costs.
In simple words: Revenue is all the money a company earns from selling its products. It includes both the production cost and profit. How much revenue a seller gets depends on how many people want to buy their product.

🎯 Exam Tip: When explaining revenue, define it clearly as sales income and then elaborate on its components and relationship with demand and average revenue.

 

Question 2. What is the meaning of Total Revenue? How is it calculated? Explain with example.
Answer: Total Revenue (TR) refers to the full monetary value a firm receives from selling all the units of its product. It represents the total sales value generated from a specific quantity of goods sold.

Calculation of Total Revenue:
Total Revenue is calculated by multiplying the total quantity of the product sold (Q) by the price per unit (P).
Formula: \( \text{TR} = \text{Q} \times \text{P} \)

Example:
If a firm sells 1,000 units of a product, and each unit is sold at a price of Rs. 5, then:
\( \text{TR} = 1,000 \text{ units} \times \text{Rs. } 5/\text{unit} \)
\( \implies \text{TR} = \text{Rs. } 5,000 \)
This calculation helps a business measure its overall sales volume in monetary terms.
In simple words: Total Revenue is the total money a company gets from all its sales. You find it by multiplying the number of items sold by their price. For example, 1000 items at Rs. 5 each gives Rs. 5000 total revenue.

🎯 Exam Tip: Always include both the definition and a clear example with calculations when asked to explain how a concept is calculated.

RBSE Class 12 Economics Chapter 9 Short Answer Type Questions

 

Question 4. What is marginal revenue? How is marginal revenue calculated? Explain with an example.
Answer: Marginal revenue is the extra income a firm gets when it sells one more unit of its product. It shows the change in total revenue from selling an additional item. This is crucial for businesses to decide on production levels.
It is calculated using the following formula:
\[ \text{Marginal Revenue (MR)} = \frac { \text{Change in total revenue} }{ \text{Change in sales quantity} } \] Or, \( \text{MR} = \frac { \Delta \text{TR} }{ \Delta \text{Q} } \) (Here \( \Delta \) denotes change).
For example: If a firm earns Rs 500 from selling 100 units and then earns Rs 504 from selling 101 units, the marginal revenue for the 101st unit is calculated as:
\( \text{MR} = \frac { \text{Rs } 504 - \text{Rs } 500 }{ 101 - 100 } = \frac { \text{Rs } 4 }{ 1 } = \text{Rs } 4 \).
In simple words: Marginal revenue is how much more money you get when you sell just one extra item. You find it by seeing how much total money changed after selling that one extra item.

🎯 Exam Tip: Remember to clearly define marginal revenue and show the formula. An example always helps in illustrating the concept effectively.

 

Question 5. How do changes in total revenue affect marginal revenue?
Answer: Changes in total revenue (TR) directly impact marginal revenue (MR). Understanding this relationship helps firms in making pricing and production decisions. Here's how they are related:
1. When total revenue is increasing at a constant rate, marginal revenue remains constant.
2. When total revenue is increasing but at a diminishing rate, marginal revenue also decreases.
3. When total revenue reaches its maximum point, marginal revenue becomes zero.
4. When total revenue starts decreasing, marginal revenue becomes negative.
In simple words: When a company's total sales money goes up steadily, the extra money from each new sale stays the same. If total sales money still goes up but slower, the extra money from each new sale starts to drop. When total sales money is highest, the extra money from the last sale is zero. If total sales money starts to fall, then the extra money from the last sale is actually a loss.

🎯 Exam Tip: Listing these four points clearly shows a complete understanding of the TR-MR relationship. Focus on the behavior of MR relative to TR's rate of change.

 

Question 6. What change in total revenue will result in maximum when MR = 0?
Answer: Total revenue will be at its maximum point when marginal revenue (MR) is equal to zero. This is a key principle in economics for profit maximization. When MR is zero, selling additional units would not increase total revenue and might even start to decrease it.
In simple words: When the extra money you get from selling one more item is zero, your total sales money has reached its highest point. Selling anything more won't add to your total earnings.

🎯 Exam Tip: State this relationship directly: TR is maximized when MR is zero. This is a fundamental concept in revenue analysis.

 

Question 7. What do you understand by Monopoly Market? What is the shape of Revenue Curve in Monopoly Market?
Answer: A monopoly market is a special type of market structure where there is only one seller of a particular product or service. This seller faces no competition because there are no close substitutes for their product. In a monopoly, the single seller has complete control over the market price. The word "monopoly" comes from "mono" (meaning single) and "poly" (meaning to sell), highlighting this single-seller characteristic.
In a monopoly market, the revenue curve (which is the demand curve for the firm) slopes downward from left to right. This downward slope indicates that to sell more units, the monopolist must lower the price. Because the firm is the only seller, the average revenue (AR) curve and the marginal revenue (MR) curve are separate and both slope downwards, with the MR curve typically lying below the AR curve.
In simple words: A monopoly market has only one seller for a product with no close alternatives. The seller decides the price. The graph showing how much money the seller makes from each item goes down as they sell more, because they have to lower the price to sell more items.

🎯 Exam Tip: When defining monopoly, emphasize the "single seller" and "no close substitutes" aspects. For revenue curves, clearly state that they are downward sloping and that AR and MR are distinct, with MR below AR.

 

Question 8. Which concept of revenue is called price?
Answer: The concept of revenue that is also referred to as price is **Average Revenue (AR)**. Average revenue represents the revenue earned per unit of output sold. Since each unit is typically sold at the market price, the average revenue a firm receives is effectively the price of the product.
In simple words: Average Revenue is the same as the price of the product. It's how much money a company gets for each item it sells.

🎯 Exam Tip: State directly that Average Revenue (AR) is considered the price. You can briefly explain why (revenue per unit).

 

Question 9. What is marginal revenue? Write its formula.
Answer: Marginal revenue refers to the additional income or revenue a firm gains from selling one extra unit of a product. It shows the change in the total revenue when one more unit is sold. This concept is vital for firms to understand how increasing their sales quantity affects their total earnings.
The formula for marginal revenue is:
\( \text{MR} = \frac { \Delta \text{TR} }{ \Delta \text{Q} } \)
Where \( \Delta \text{TR} \) is the change in total revenue and \( \Delta \text{Q} \) is the change in the quantity sold (usually one unit).
In simple words: Marginal revenue is the extra money you get when you sell one more item. It's calculated by dividing the change in total money by the change in items sold.

🎯 Exam Tip: Provide a clear definition and remember to write the formula using the correct symbols for change (delta, \( \Delta \)).

 

Question 10. What do you mean by oligopoly?
Answer: Oligopoly is a market structure where there are only a few large firms that dominate the market. These firms sell either homogeneous products (like steel) or differentiated products (like cars). Because there are only a few sellers, the actions of one firm significantly affect the others, leading to strategic behavior and interdependence among them. This makes it a complex market for new companies to enter.
In simple words: Oligopoly is a market where a few big companies sell a product. What one company does (like changing prices) affects all the others, so they watch each other closely.

🎯 Exam Tip: The key features of oligopoly are "few firms," "interdependence," and either "homogeneous or differentiated products." Mentioning these points is crucial.

 

Question 11. State the two characteristics of oligopoly.
Answer: [Answer not provided in source]
In simple words: [Answer not provided in source]

🎯 Exam Tip: When characteristics are asked, aim to provide distinct and clear points, such as "few sellers" and "interdependence among firms."

 

RBSE Class 12 Economics Chapter 9 Long Answer Type Questions

 

Question 10. What do you understand by perfect competition market? What are the shape of Average and Marginal Revenue Curves of firm in this market?
Answer: A perfect competition market is a theoretical market structure characterized by a very large number of buyers and sellers, all trading an identical product. In this market, no single buyer or seller can influence the market price because their individual transactions are a tiny fraction of the total market. The price is determined purely by the overall market forces of supply and demand.
The firm in perfect competition cannot influence the price of the product it sells. The average and marginal revenue curves for a firm in perfect competition are both horizontal straight lines. These lines are parallel to the X-axis (quantity axis) and are also equal to the market price. This means that at the prevailing market price, a firm can sell any quantity it wants without affecting the price. Therefore, for a perfectly competitive firm, Price \( = \) Average Revenue \( = \) Marginal Revenue.
In simple words: In perfect competition, many buyers and sellers trade the same product, and no one person can change the price. The company's graph for how much money it makes per item (Average Revenue) and how much extra money it makes from one more item (Marginal Revenue) is a flat line, meaning the price stays the same no matter how many items it sells.

🎯 Exam Tip: Define perfect competition by highlighting "large number of buyers/sellers," "homogeneous product," and "price takers." For the revenue curves, emphasize they are horizontal, parallel to the X-axis, and that P=AR=MR.

 

Question 11. If the monthly total sales of a firm is Rs 20,000 and the quantity of sales is 800 units, then what will be the average revenue?
Answer: To find the average revenue, we use the formula:
Average Revenue \( = \frac { \text{Total Revenue} }{ \text{Quantity sold} } \)
Given:
Total Sales (Total Revenue) \( = \text{Rs } 20,000 \)
Quantity of Sales \( = 800 \) units
Plugging these values into the formula:
Average Revenue \( = \frac { \text{Rs } 20,000 }{ 800 } \)
Average Revenue \( = \text{Rs } 25 \)
Thus, the average revenue for the firm is Rs 25 per unit.
In simple words: To find the average money earned per item, divide the total money earned (Rs 20,000) by the number of items sold (800 units). The average revenue is Rs 25 for each unit.

🎯 Exam Tip: Clearly state the formula for average revenue and show the substitution of values. Ensure the final answer includes the unit (Rs per unit).

 

Question 12. Calculate the average and marginal revenue with the help of the following:

Answer: We can calculate Average Revenue (AR) by dividing Total Revenue (TR) by the Quantity (Q). Marginal Revenue (MR) is calculated as the change in Total Revenue divided by the change in Quantity (\( \Delta \text{TR} / \Delta \text{Q} \)). Assuming TR at Q=0 is 0.

In simple words: To get Average Revenue, divide the Total Revenue by the number of units sold. To get Marginal Revenue, find how much the Total Revenue changed when one more unit was sold.

🎯 Exam Tip: Always show your calculations for each AR and MR value clearly. Remember that MR for the first unit is equal to the AR for the first unit, assuming zero total revenue at zero output.

 

Question 13. What is the difference between the revenue curves of perfect and imperfect competition markets?
Answer: The revenue curves behave differently in perfect competition and imperfect competition markets due to varying levels of market control firms possess. Here are the key differences:
1. In a perfect competition market, the average revenue (AR) curve and the marginal revenue (MR) curve are identical and appear as a single horizontal straight line. This is because the price remains constant regardless of the quantity sold. However, in an imperfect market (like monopoly or monopolistic competition), both AR and MR curves are separate and downward sloping.
2. The revenue curves in a perfect competition market are perfectly elastic, meaning that a slight change in price would lead to an infinite change in quantity demanded from the firm's perspective. In contrast, the revenue curves in an imperfect competition market are only moderately elastic, showing a less extreme response to price changes.
In simple words: In perfect competition, the price never changes, so the graph for average money and extra money from sales is a flat line. But in imperfect competition, the price can change, so these graphs go downwards, and the average money graph is always above the extra money graph.

🎯 Exam Tip: Focus on the shape (horizontal vs. downward sloping) and relationship (AR=MR vs. AR>MR) of the curves. Mentioning elasticity adds depth to the answer.

 

Question 14. Why does the revenue curve form a negative slope in imperfect competition market and monopoly market?
Answer: The revenue curve (specifically the average revenue or demand curve) forms a negative slope in imperfect competition and monopoly markets because firms in these markets have some control over pricing. To sell more units of their product, they must reduce its price. This inverse relationship between price and quantity sold leads to a downward-sloping demand curve. Since average revenue is effectively the price, the AR curve also slopes downwards.
In these markets, the marginal revenue (MR) curve lies below the average revenue (AR) curve. This happens because for each additional unit sold, the price not only applies to that new unit but also has to be lowered for all previously sold units to encourage higher sales. Consequently, the revenue gained from the extra unit is less than the average price, making the MR curve fall faster than the AR curve. For a straight-line average revenue curve that slopes downwards, the marginal revenue curve will always pass through the midpoint between the AR curve and the Y-axis.
In simple words: The graph for how much money a company makes from sales slopes downwards in imperfect and monopoly markets. This is because to sell more items, the company usually has to lower its price. Also, the extra money from selling one more item (marginal revenue) falls faster than the average money from sales, so its graph is always below the average money graph.

🎯 Exam Tip: Explain that firms in these markets are "price makers" and must lower prices to sell more. Differentiate between AR and MR curves, explaining why MR falls faster and lies below AR.

 

Question 15. What is the relation between total revenue and marginal revenue?
Answer: The relationship between total revenue (TR) and marginal revenue (MR) is fundamental for understanding a firm's pricing and output decisions. Here are the key points:
1. When total revenue is increasing at a constant rate, marginal revenue remains constant.
2. When total revenue is increasing but at a diminishing rate, marginal revenue decreases.
3. When total revenue reaches its maximum point, marginal revenue becomes zero.
4. When total revenue begins to decrease, marginal revenue becomes negative.
In simple words: Total money earned and extra money from sales are linked. If total money grows steadily, extra money stays the same. If total money grows slower, extra money falls. When total money is highest, extra money is zero. If total money starts to drop, extra money becomes a loss.

🎯 Exam Tip: Clearly state the four relationships between TR and MR. This forms the basis for understanding a firm's output decisions, especially profit maximization where MR=0.

 

Question 17. The price of a commodity is Rs 25 per unit in a perfectly competitive market. Complete the table given below:

Answer: Given that the price of the commodity is Rs 25 per unit in a perfectly competitive market, we can complete the table. In perfect competition, Price (P) is equal to Average Revenue (AR) and Marginal Revenue (MR). Total Revenue (TR) is calculated as Quantity (Q) multiplied by Price (P). Marginal Revenue (MR) is the change in TR for each additional unit sold.
\[ \text{Hint: TR} = \text{Q} \times \text{P}; \text{MR} = \frac { \Delta \text{TR} }{ \Delta \text{Q} } \] Here is the completed table:

In simple words: Since the price is always Rs 25 in perfect competition, the total money earned is simply the number of items sold multiplied by Rs 25. The extra money from each new item sold will also always be Rs 25.

🎯 Exam Tip: Remember that in perfect competition, the price is constant, so AR=MR=Price. This simplifies the calculations significantly.

RBSE Class 12 Economics Chapter 9 Essay Type Questions

 

Question 1. Explain revenue, total revenue, marginal revenue and average revenue with the help of examples.
Answer: Revenue is a crucial concept in economics, representing the income a firm generates from its business activities. It is the total money a company receives from selling its goods or services, renting assets, or other sources. Revenue includes both the cost of production and the profit earned by the company.

(A) **Revenue:** This is the overall income a company gets. For example, if a bakery sells bread and cakes, the money it collects from all these sales is its revenue.

(B) **Total Revenue (TR):** Total revenue is the full amount of money a firm receives from selling a specific quantity of its product. It is calculated by multiplying the quantity of the product sold (Q) by its price per unit (P).
\[ \text{TR} = \text{Q} \times \text{P} \] For example: Consider a firm that sells 1,000 units of a product at Rs 5 per unit. Its total revenue would be \( 1,000 \times \text{Rs } 5 = \text{Rs } 5,000 \).

(C) **Marginal Revenue (MR):** Marginal revenue is the additional revenue a firm earns from selling one more unit of a product. It shows the change in total revenue that occurs when the sales quantity increases by one unit. This helps a firm decide if selling more items is beneficial.
\[ \text{MR} = \frac { \text{Change in Total Revenue} }{ \text{Change in sales quantity} } = \frac { \Delta \text{TR} }{ \Delta \text{Q} } \] For example: If a firm earns Rs 500 from selling 100 units and then earns Rs 504 from selling 101 units, the marginal revenue for the 101st unit is \( \frac { \text{Rs } 504 - \text{Rs } 500 }{ 101 - 100 } = \frac { \text{Rs } 4 }{ 1 } = \text{Rs } 4 \).

(D) **Average Revenue (AR):** Average revenue is the revenue earned per unit of output sold. It is calculated by dividing the total revenue (TR) by the total quantity of units sold (Q). Average revenue is often equal to the price of the product.
\[ \text{AR} = \frac { \text{Total Revenue (TR)} }{ \text{Quantity sold (Q)} } \] For example: If a firm has a total revenue of Rs 40 from selling 8 units, its average revenue would be \( \frac { \text{Rs } 40 }{ 8 } = \text{Rs } 5 \) per unit. This also means the price per unit is Rs 5. This calculation helps in understanding the average income per item. We can demonstrate this with a table:

In simple words: Revenue is all the money a business takes in. Total Revenue is all the money from selling everything. Marginal Revenue is the extra money you get from selling one more item. Average Revenue is the money you get for each item on average.

🎯 Exam Tip: For an essay question, define each term clearly and provide a simple, distinct example for each. Ensure all four concepts requested in the question are covered comprehensively.

 

Question 2. What do you understand by imperfect competition market? What are the types of revenue curves in this market? Explain it with the help of a table and diagram.
Answer: An imperfect competition market is a market structure where individual firms have some control over the price of their products, unlike in perfect competition. This control can arise due to a small number of firms or product differentiation, where products are similar but not identical. Firms in imperfect competition sell products that are differentiated but close substitutes for each other. According to economist Leftwich, imperfect competition is a market situation where many sellers offer a particular product, but each seller's product is unique in the minds of consumers from other sellers' products. For example, the market for shoes or soft drinks involves many sellers, each with a slightly different product.

In an imperfect competition market, the revenue curves are typically downward sloping. Both the Average Revenue (AR) curve and the Marginal Revenue (MR) curve slope downwards from left to right. The AR curve is essentially the demand curve for the firm's product. Since the firm must lower its price to sell more units, both AR and MR fall as output increases. Importantly, the Marginal Revenue (MR) curve lies below the Average Revenue (AR) curve and falls faster than the AR curve. This occurs because to sell an extra unit, the firm must lower the price not just for that unit, but for all previous units as well, which reduces the additional revenue gained.

Let's illustrate with an imaginary table showing the calculation of Total Revenue, Average Revenue, and Marginal Revenue in an imperfect competition market:

From the table, we can see that as the quantity sold increases, both Average Revenue (Price) and Marginal Revenue decrease, with MR falling faster than AR. Total revenue initially increases, reaches a maximum (at 6 units where MR is 0), and then starts to fall.


**Diagrammatic Representation:**
The following diagrams illustrate the Total Revenue, Average Revenue, and Marginal Revenue curves under imperfect competition. The Total Revenue curve typically rises, reaches a peak, and then falls. The AR and MR curves both slope downwards, with MR below AR. This shows that AR and MR curves are more elastic under imperfect competition. This means that if a firm raises its price, the demand for its product will fall significantly because consumers can switch to close substitutes.



In simple words: Imperfect competition means companies have some power to set prices because their products are a bit different. Their sales graphs for average and extra money both slope down, with the extra money graph always lower. This is shown with tables and diagrams that illustrate how these revenues change.

🎯 Exam Tip: Clearly define imperfect competition and its key characteristics. For revenue curves, draw and label the AR and MR curves, showing both sloping downwards with MR below AR. Ensure the table calculations are accurate.

 

Question 3. What are the features of monopoly market? What is the type of revenue curve in this market? Explain it with the help of table and diagram.
Answer: A monopoly market is a unique market structure characterized by a single seller. This seller offers a product that has no close substitutes, meaning there is no competition. Because there's only one firm, it has significant power to set prices for its goods.

Here are the key features of a monopoly market:
(a) **Single Seller:** In a monopoly, there is only one producer or supplier of the commodity.
(b) **Monopoly is also an Industry:** Since there's only one firm, it acts as the entire industry. There's no distinction between an individual firm and the industry as a whole.
(c) **No Close Substitutes:** The product sold by a monopolist has no close alternatives. This lack of substitutes gives the monopolist significant market power.
(d) **Barriers to Entry:** New firms cannot easily enter the market. These barriers can be legal, technological, or economic, protecting the monopolist from competition.
(e) **Price Control:** The monopolist has considerable power to influence the price of the commodity. They can set either the price or the output level, but not both simultaneously.
(f) **Different Average and Marginal Revenue Curves:** Under monopoly, both the average revenue (AR) or demand curve and the marginal revenue (MR) curve are separate and slope downwards.
(g) **Very Small or Marginal Selling Costs:** Since there's no competition, the monopolist doesn't need to spend much on advertising or other selling costs.
(h) **Downward Sloping Demand Curve:** The demand curve for a monopolist's product slopes downward. This means if the monopolist wants to sell more units, they must lower the price. Conversely, if they want to charge a higher price, they will sell fewer units.

In a monopoly market, the average revenue (AR) and marginal revenue (MR) curves slope downwards from left to right. This downward slope indicates a negative relationship between the price and the quantity demanded. The AR curve is the firm's demand curve, reflecting that to sell more, the price must fall. The MR curve also slopes downwards and always lies below the AR curve, falling faster than AR. This is because the price reduction to sell an extra unit affects all units sold, not just the last one. Such average and marginal revenue curves can be shown with a table and diagram:

Let's consider a numerical example:

**Diagrammatic Representation:**
The figures below illustrate the Total Revenue, Average Revenue, and Marginal Revenue curves for a monopolist. The Total Revenue curve rises, peaks, and then falls. The AR and MR curves both slope downwards, with MR lying below AR and falling faster. This shows that to sell more goods, the monopolist must reduce the price.



It is clear from the diagrams that after a certain point (like the fourth unit in the table), total revenue starts to decrease because marginal revenue becomes negative. The slope of the marginal revenue curve is steeper than the average revenue curve, meaning marginal revenue falls at a faster rate. The average revenue curve acts as the firm's demand curve.
In simple words: A monopoly market has only one seller for a product with no close substitutes, giving them control over price. Their sales graphs for average money and extra money both slope downwards because they must lower prices to sell more. The extra money graph falls faster and is always below the average money graph, as shown in the table and diagrams.

🎯 Exam Tip: List the key features of a monopoly and then explain the downward-sloping nature of AR and MR curves. Provide a clear table with calculations and illustrate with well-labeled diagrams showing TR, AR, and MR curves.