Reason Based & Extra Questions - Revenue Notes | Study Crash Course of Micro Economics -Class 12 - Commerce

Commerce: Reason Based & Extra Questions - Revenue Notes | Study Crash Course of Micro Economics -Class 12 - Commerce

The document Reason Based & Extra Questions - Revenue Notes | Study Crash Course of Micro Economics -Class 12 - Commerce is a part of the Commerce Course Crash Course of Micro Economics -Class 12.
All you need of Commerce at this link: Commerce

Reason Based Question’s

(Q1) State true or false with reasons  :: 

(a) When MR is positive and constant, AR and TR will both  increase at constant rate.

(b) When total revenue is maximum, marginal revenue is also maximum

Ans: F , F

(Q2) AR = 0, when TR is maximum.
Ans:

(Q3) MR can never be negative as it implies a situation of zero price.

Ans: False.  Zero price is a situation when AR = 0. Therefore, MR can be negative even when price is not.

(Q4) Producer’s price line shows highest price elasticity of demand in a state of perfect      competition.
Ans: T    

(Q5)  TR curve can touch the X-axis.
Ans: True . In a situation of zero price, AR touches X axis.  Accordingly, TR also touches X-axis.

(Q6) When TR curve is a horizontal line, MR curve is constant.
Ans: F    

(Q7)  Marginal revenue can never be equal to price of the commodity.
Ans: F

(Q8) Average revenue can become negative when price falls with rise in output.

Ans: False.  AR cannot be negative as total revenue can never be negative.

(Q9)  Total revenue curve always starts from the origin.
Ans: T

(Q10) Marginal revenue is zero when every additional unit is sold at the same price.

Ans: False.  In such case, marginal revenue = average revenue (or price)

(Q11) Greater production always means greater revenue.
Ans: F

(Q12) Greater revenue always implies higher profit for a firm. 
Ans: F

(Q13) AR curve does not shoot from the origin.
Ans: T

(Q14) Under perfect competition, MR falls with an increase in sales of goods.
Ans: F

(Q15) When marginal revenue falls to zero, average revenue becomes maximum.

Ans: False, as when MR falls to zero TR becomes constant and so AR will fall as, AR =    TR Output

(Q16) The average revenue curve can lie in the negative axis                      

Ans: False ,  average revenue curve can never lie in the negative axis as total revenue cannot be negative.

(Q17) Under monopoly, AR and MR rises upward with an increase in sales.

Ans: F

(Q18) Marginal revenue refers to the price of the last unit of a commodity.

Ans: False. Marginal revenue simply refers to additional revenue when an                     additional unit of a commodity is sold.

(Q19) Giving reasons, state if the following statements are true or false.

(a)    Average revenue can be zero        (b) Average revenue can be negative

(c)    Marginal revenue can be zero        (d) Marginal revenue can be negative

(e)    Average revenue will always be equal to marginal revenue in all market conditions.

Ans: F , F , T , T , F

(Q20) Since price of a commodity forms average revenue for a firm, both average revenue and  marginal revenue cannot be negative

Ans: F

(Q21) TR is the sum total of area under AR corresponding to a given level of output 

Ans: F , TR is the sum total of area under AR corresponding to a given level of output only if AR is constant as under perfect competition where AR = MR  


EXTRA QUESTION’s

(Q1) Producer’s price line shows highest price elasticity of demand in a state of perfect       competition. Do you agree?

Ans: Yes. In perfect competition, producer’s price line shows the highest price elasticity of demand which is infinity. This is because producer’s price line under perfect competition is a horizontal straight line.

(Q2) Monopolist never allows MR to fall because he is the only producer of a commodity in the market. Comment.

Ans: No ,  MR is always falling in case of monopoly because he can sell more only at lower price of the commodity. 

(Q3)  Why is firm’s demand curve the same as AR curve of the firm ? 
or 

“ AR curve represents demand curve of the firm”  Do you agree ?

Ans: Firm’s demand curve is a curve showing relationship between price of the firm’s product and its quantity demanded by the consumers in the market.  Again for a firm Price = AR. On the other hand firm’s AR curve shows the relationship between price (AR) and quantity sold of its product in the market.  Thus it can be stated that firm’s demand curve is the same as AR curve of the firm

(Q4) A manager of the zoo wants to increase the revenue. Which measure is most appropriate ? Explain.
(i) Increase the entry fee
(ii)  Decrease the entry fee.

Ans: Since the manager of the zoo wants to raise its revenue, it must raise its sale proceeds. It will only be raised if entry fee of zoo is decreased. It will raise the number of visitors by which total revenue of the zoo will increase.

(Q5) What is firm’s demand curve ?

Ans: AR curve is Firms demand curve  showing relationship between price of the product (that the firm is producing) and its quantity demanded in the market & Price = AR.

(Q6) Can price of the commodity ever be zero?

Ans: Yes , there are actual situations  when price of the commodity is zero, and it continues to be demanded eg Polio Drops 

(Q7) The following headline appeared in the Economic Times :     “Room Supply may Hit Hotel Revenues.”  Explain the economic theory to analyse the impact of the statement.

Ans: With an increase in the number of Hotel rooms, supply increase. However, demand may not rise. It may even fall. Accordingly, room tariff (rent) may fall which will hit hotel revenue.

(Q8) What is firm’s price line ? What is its shape ?

Ans: Firm’s price line is the same as firm’s AR curve. 

Under Perfect competition, firm’s price line is a horizontal straight line where AR = MR

Under monopoly or monopolistic competition, firm’s price line slopes downward ( AR > MR)

(Q9) A farmer’s entire produce of potatoes is destroyed by the wild animals. What impact would it cause on the AR curve of the farmer ? Assume perfect competition.

Ans: AR curve of the farmer would not be affected at all. Under perfect competition , AR curve is a horizontal straight line. It indicates constant price even when an individual producer brings no supplies in the market.           

(Q10) Comment on the shape of the MR curve and AR / Demand curve in case the TR curve is a 

(a) positively sloped straight line passing through the origin 

(b) horizontal straight line.

Ans:

(a)  MR curve will be a horizontal straight line parallel to the X-axis it indicates that revenue from every additional unit sold { MR } remains same for every level of output

AR curve will also be a horizontal straight line parallel to the X-axis as AR = MR

(b)  MR will be zero.  It happens because horizontal TR indicates that TR remains same at levels of output.  It is possible only when revenue from additional unit sold (i.e. MR) is zero. MR curve coincides with X-axis. If TR is horizontal, demand curve will be a rectangular hyperbola.

(Q11) What will be the shape of MR curve when TR increases at constant rate ?   , OR

If in a particular market total revenue increases by the same value then what will be the price charged by the firm ?

Ans: same as (Q10 {a})

(Q12) Which condition/feature gives rise to shape of revenue curves under monopoly ?

Ans:  No close substitute 

(Q13) ‘ When AR and MR slope downward in a straight line, MR falls through midway of AR and Y-axis.’ Comment. 

(Q14) Explain diagrammatically that total revenue is maximum when MR is zero ?

(Q15) What is revenue of a firm ? What happens to AR when 

(a) MR is greater than AR
(b) MR is equal to AR
(c) MR less than AR

(Q16) Why is the TR curve of a price-taking firm an upward sloping straight line ? Why does the curve pass through the origin ? 

(Q17) Kabir, a retail shopkeeper, wants to maximise his profit (i.e. to reach at equilibrium level of output) and he knows that he can sell more of his product by lowering the price. Explain the conditions required and use diagram as well.

The document Reason Based & Extra Questions - Revenue Notes | Study Crash Course of Micro Economics -Class 12 - Commerce is a part of the Commerce Course Crash Course of Micro Economics -Class 12.
All you need of Commerce at this link: Commerce

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