Giving reasons, state whether the following statements are true or false :
1. When there are diminishing returns to a factor, total product always decreases.
Ans :- False. When there is diminishing returns to a factor, TPP increases at a decreasing rate.
2. TPP increases only when MPP increases.
Ans :- False. TPP also increases when MPP decreases but remains positive.
3. Increase in TPP always indicates that there are increasing returns to a factor.
Ans :- False. TPP increases even when there are diminishing returns to a factor.
4. When there are diminishing returns to a factor marginal and total products always fall.
Ans: - False. Only MPP falls, not TPP. In case of diminishing returns to a factor, TPP increase at diminishing rate.
5. Calculate MP for the following.
Ans :- MP: 0 5 8 10 5 0 -4
Q. Why AFC curve never touches ‘x’ axis though it lies very close to x axis?
Ans :- Because TFC can never be zero.
Q. Why AVC and AFC always lie below AC?
Ans:- AC is the summation of AVC & AFC so AC always lies above AVC & AFC.
Q. Why TVC curve start from origin?
Ans:- TVC is zero at zero level of output.
Q. When TVC is zero at zero level of output, what happens to TFC or Why TFC is not zero at zero level of output?
Ans:- Fixed cost are to be incurred even at zero level of output.
Q. Can MR be negative or zero.
Ans:- Yes, MR can be zero or negative.
Q. If all units are sold at same price how will it affect AR and MR?
Ans:- AR and MR will be equal at levels of output.
Q. What is price line?
Ans:- Price line is the same as AR line and is horizontal to X-axis in perfect competition.
Q. Can TR be a horizontal Straight line?
Ans:- Yes, when MR is zero.
Q. What do you mean by revenue?
Q. Explain the concept of revenue ( TR, AR and MR)
Q. Define AR
Q. Prove that AR = price
Q. Prove that AR is nothing but demand curve.?
Q. Explain the relationships between AR and MR when price is constant and when price falls.
Q. Explain the relationships between TR and MR when price is constant.
Q. What is break- even point? Explain with a diagram.
Q. When the situation of ‘shut – down’ point arises for a firm?
Q. What happens to TR when a) MR is increasing, b) decreasing but remains positive and c) MR is negative?
Ans:- a) TR increases at an increasing rate.
b) TR increases at a diminishing rate.
c) TR decreases.
Q. Why AR is more elastic in monopolistic competition than monopoly?
Ans:- Monopolistic competition market has close substitutes. Monopoly market does not have close substitutes.
Q. Why TR is 45 0 angle in perfect competition market?
Ans:- In perfect competition market the goods are sold at the same price so AR= MR and the TR increases at a constant rate.
Q. Can there be Break- even point with AR = AC
Ans:- Yes there can be breakeven point with AR=AC.