Reason Based & Extra Questions - Production Function Commerce Notes | EduRev

Crash Course of Micro Economics -Class 12

Commerce : Reason Based & Extra Questions - Production Function Commerce Notes | EduRev

The document Reason Based & Extra Questions - Production Function Commerce Notes | EduRev is a part of the Commerce Course Crash Course of Micro Economics -Class 12.
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Reason Based Question’s

(Q1) Giving reasons, state whether the following statements are true or false ::
(a) When there are diminishing returns to a factor, marginal product and total product both always diminish.                                    

(b) TP will increase only when MP increases

(c) Increase in TP always indicates that there are increasing return to factor

Ans: F , F , F

(Q2) The distinction between short and long run is based on a fixed time period 

Ans F

(Q3) Production function establishing a relation between inputs and output, which is technical and not economical in nature. 
Ans: T

(Q4) Both average product and marginal product can be zero.

Ans: True. MP can be zero when total product remains same with increase in variable input.  Average product can also be zero when total product is zero.

(Q5) A rational producer aims to operate in first phase of Law of Variable Proportions as total product increases at increasing rate.
Ans: F

(Q6) Average product can rise even when marginal product starts declining.

Ans: T

(Q7) Marginal Product cuts the Average Product from its top.
Ans: 

(Q8) When average product increases with increase in units of variable inputs, total product will always increase at an increasing rate.
Ans: F

(Q9) Variable factor proportions obtained in the short-run only & Fixed factor proportions are obtained in the long-run only.
Ans: T

(Q10) In the short period, production is done only by using the variable factors.

Ans: F

(Q11) Law of variable proportions must operate,even when all factors of production are     variable. 
Ans: False. LOVP operates basically because of the fixity of some factors.

(Q12) Law of variable proportions operates only if factor ratio happens to change.

Ans: T

(Q13) Diminishing returns to a factor occurs because fixed factor cannot be used as much as the variable factor.
Ans: T

(Q14) It is because of the law of variable proportions that MP curve makes an inverted-U.

Ans: T

(Q15) Diminishing returns to a factor must lead to a fall in marginal product as well as total product.

Ans: False.

(Q16) Initially TP increases but ultimately falls when there are diminishing returns to a factor.

Ans: F

(Q17) At the existing level of output, MP = AP = 10 units. Would AP be equal to MP when production is increased and law of variable proportions is in operation?

Ans: No. When production is increased beyond a point where MP = AP (implying AP is at its top), MP and AP should start declining. Fall in MP should be faster than the fall in AP. So that AP > MP.

(Q18) Do you agree that an intelligent producer can avoid the occurrence of diminishing returns to a factor even with the existing technology ?

Ans: No. Diminishing returns to a factor cannot be avoided with the existing/constant technology. Because diminishing returns occur as a matter of law when the producer deviates from the ideal factor ratio owing to the fixity of the factor(s).

(Q19)  MP starts diminishing from the point of inflexion.

Ans: T

(Q20) ‘Returns to a variable factor operates in the long period.
Ans: F


EXTRA QUESTION’s

(Q1) In a situation of disguised unemployment, MP can be negative.

Ans: True.  In a situation of disguised unemployment, MP can be negative.  Because, employment of workers more than what is required reduces the overall efficiency of the workers , so that MP becomes negative.

(Q2) Define short run and long run.  How is production function specified for the two periods?  Give illustrations.

Ans: 40x = f (5L, 4‘K)   &   45x = f (6L, 4‘K)

(Q3) Availability of agricultural land is limited in India but demand of food grains is continuously increasing.  Is it possible to increase the supply of food grains by continuously increasing variable inputs like seeds, fertilizers, etc.?  Explain.

Ans: When availability of agricultural land is limited, production of food grains can, no doubt, be increased by continuous increase in variable inputs like raw material.  But it is possible only up to point of optimum combination with fixed factor (land) because after that, increase in variable inputs will reduce the production of variable inputs.

(Q4) Output of food grain in India at one stage was less than its domestic demand.  Now it is not.  Does it mean that law of diminishing returns has failed in Indian agriculture?

Ans:  Rise in output of food grain in India has been due to the use of new technology (related to High-Yielding variety Seeds).  Operation of law of diminishing returns is postponed for sometimes when improved and better technology is used.  It does not mean that the said law has failed to operate. 

(Q5) When law of diminishing  return is a universal law, why is average product (AP) in developed country like USA higher than that in less developed country like India?  State two reasons.

Ans: (a) A devised country uses a more advanced technique of production as compared to the technology used in less developed country.

(b) Productivity of labour in a developed economy is much higher due to the use of advanced infrastructure than in less developed country.

(Q6)  In a situation of fall in the sale of Ice-Cream, the producer would like to reduce its production.  What inputs of production-fixed or variable-will be reduced by him?

Ans: In short run since the producer cannot change cost of fixed inputs like machinery and factory building, therefore , he will be compelled to reduce the cost of variable inputs like temporary labour, power and raw material.

(Q7) When diminishing returns are reversed through mechanisation in agriculture, how does it impact the employment of labour?

Ans: Mechanisation implies the use of capital (machinery) in place of labour. It raises productivity of labour, of course. But, leads to the emergence of surplus labour -                   a situation of unemployment

(Q8) What does point of inflexion on TP curve indicate?

Ans: It indicates the point at which TP curve changes its shape from increasing rate to deceasing rate.

(Q9) When a variable factor is combined with some fixed factors and output changes by     variable proportion, what would you call it ?

Ans: Returns to a factor.

(Q10) How far mechanisation of agriculture has resulted in deferring law of diminishing returns to a factor in this sector ? Is it true now ?

Ans: Mechanisation of agriculture in India brought Green Revolution in the country , due to which law of diminishing returns to a factor was turned into law of increasing returns. But however , the diminishing returns to factor has started prevailing again in agriculture sector in recent years.

(Q11) A country’s electronic industry is passing through diminishing returns. Firm wants to raise production defeating the effect of diminishing stage. Suggest two ways. 0r 

Iron and steel industry in India has faced various phase of production and now sticking to final phase. Suggest various measures by which final stage of variable proportion of factors of production can be postponed.

Ans:

(a) By introducing new technology that helps in reducing its cost of production.

(b) By improving managerial skills so that labour cost as well as marketing costs are reduced.

(Q12) With regard to Indian agriculture sector which of following statement is true and why ?

(a) Law of increasing returns is applicable

(b) Law of diminishing returns is applicable.

Ans: Statement (b) is true in Indian agriculture.

(Q13) Explain how income of a producer different from incomes (rewards) of all other factors of production.

Ans: The income (or rewards) of all other factors of production namely, rent, wage and interest are contractual and hence are always positive.  But the income of a producer (known as profit) is residual in nature.  A producer earns profits only after making payments to other factors and thus it is quite uncertain.  It can be positive, zero or even negative.

(Q14) Mr. Ram receives an order for 200000 quantities of a commodity which have to be   delivered by him just after 5 months. He finds that it is not possible for him to complete this order in time. What should he do to complete this order within the gives period ?

(Q15)  How is TPP derived from     
(a) APP     (b)  MPP

(Q16) What happens to MP when
(a) TP is declining     (b) TP increases at increasing rate

(Q17)  What type of changes take place in total product and marginal product when there are :

(a) Increasing return to factor

(b) diminishing return to factor

Why do these changes takes place ?

(Q18) Do you agree that an intelligent producer can avoid the occurrence of diminishing returns to a factor even with the existing technology ?

(Q19) Due to enormous increase in the price of land, the farmers prefer to sell the land to the real estate promoters instead of taking chances in the agricultural earning.  Is it a healthy trend for a country like India ?

(Q20) The production function of Tata Motors is given us as

Qx = F(L, K) where,   L = 50,000 labourers and   K = Rs. 5,00,000 crores

Identify whether the function relates to short-run or long-run. 

(Q21) Raman has increased his output by increasing three more labourers on his existing machines. The output will be governed by which law ?

(Q22) Raj Mohan runs a clutch plate manufacturing unit and is currently operating in the second stage of law of variable proportion. State any one measure that can be adopted by him so that the transition to third stage is delayed.

(Q23) Law of production in short run is termed as law of variable proportions. :: Justify 

(Q24) Using it, answer the following:

(a) At the point of inflexion of the production function ____ product is at its maximum.

(b) When total product is declining with increasing quantities of input ______ product is

negative and _____ product is positive and declining/increasing.

(c) Do total product and average product coincide?


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