Scanner - Cost of Production(2016-2018) Commerce Notes | EduRev

Crash Course of Micro Economics -Class 12

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CBSE 2016

(Q1)  What is the relation between Average Variable Cost and Average Total Cost, if Total Fixed Cost is zero ?(1M)

Ans : AVC = ATC

(Q2) What happens to the difference between ATC and AVC as production is increased?(1M)

Ans :  it decreases

(Q3) What happens to the difference between TC and TVC as output is increased ? (1M)

Ans : it remains constant

(Q4) A producer borrows money to run a business but manages the business himself. Identify implicit cost.

Ans :  Imputed salary of the producer

(Q5) A farmer invests his own saving in doing farmings but hires labour to do work. Identify implicit cost.

Ans : Imputed interest of own saving is implicit cost.

(Q6) A producer starts the business in the building owned by him and borrows money for running it. Identify implicit cost.

Ans : Imputed rent of own building.

(Q7) Define fixed cost. Give an example. Explain with reason the behaviour of Average Fixed Cost as output is increased. (4M)

Ans : Fixed cost refers to the cost which does not change with change in output.
Example : rent, interest etc. (any one) (1 + 1)

As output increase AFC goes on falling continuously because

AFC =  TFC and TFC is constant (2)

                Output

(Q8) What is the relation between marginal cost and average variable cost when marginal cost is rising and average variable cost is falling ? (1)

Ans : MC is less than AVC

(Q9)  What is the relation between marginal cost and average cost when average cost is constant ?

Ans : AC = MC

(Q10) What is the relation between marginal cost and average cost when average cost is rising

Ans : MC > AC

(Q11) Define cost. Distinguish between fixed and variable costs. Give one example of each.

Ans : Cost: in economics means the sum of actual money expenditure on inputs and imputed expenditure on inputs supplied by the owner including normal profit.      (1)

Fixed cost: refers to cost which remains unchanged as output is increased.  For example rent, interest etc. (any one) (11/2)

Variable cost: refers to cost which rises/falls as output is increased/decreased.  For example cost of raw materials etc. (any one) (11/2)

(Q12) Define cost. State the behaviour of (a) Total Fixed Cost and (b) Total Variable Cost as output is increased.

Ans : Cost is the sum of actual money expenditure on inputs and imputed expenditure on inputs supplied by the owner, including normal profit.  TFC remains unchanged as output is increased. Initially TVC increases at decreasing rate upto a certain level of output and then increases atincreasing rate.

CBSE 2017

(Q1) An individual undertakes retail business in the premises taken on rent. The business is financed by his own savings. He also manages the business himself. What are the explicit costs and implicit costs in it directly identifiable ? Give reasons for your answer


(Q2) A person starts a taxi service. The taxi is financed by a bank. He himself drives the taxi. He also pays annual license fees to government. What are the explicit and implicit costs directly identifiable in it ? Give reasons for your answer


(Q3) A person starts a goods transport business. He purchases a goods carrier using partly his own savings and partly borrows money. He drives the carrier himself. What are the explicit costs and implicit costs directly identifiable in it ? Give reason for your answer.


Q4) A woman borrows money from a bank and starts a business in a building owned by her. She manages the business herself. What are the explicit costs and implicit costs in it directly identifiable ? Give reasons for your answer


(Q5) A farmer undertakes farming on the land owned by him with only family members working on it. The farmer borrows money for this purpose. What are the explicit costs and implicit cost directly identiable in it ? Give reason for your answer 


(Q6) A chartered accountant starts accounting services in the office owned by him and by investing his own savings. He employs assistants for this purpose. What are explicit costs and implicit costs directly identifiable in it ? Give reason for your answer.


(Q7) Complete the following table :                            (6M)

    Output (units)              1         2        3         4        5

    AFC (Rs.)            120        60        ....        30        ....

    AVC (Rs.)              40        56        54        ....        ....

    MC (Rs.)            .....        ....        ....        54        ....

    TC (Rs.)            .....        232        ....        ....        ....


Ans : Output    AFC        AVC        MC        TC
              1            120          40           40          160

              2            60            56          72           232

              3            40            54          50           282

              4            30            54         54            336

              5                    (To be marked as a whole)            (6M)

    Note : Row 5 is redundant, so it be ignored.    The question ends at 4 units level 


(Q8) Complete the following table :                            

    Output (units)         AFC (Rs.)        MC (Rs.)        AVC (Rs.)    AC (Rs.)

                          1             60                   20                  ....                    ....

                          2             ....                   ....                  19                     ....

                          3             20                   ....                  18                      ....

                          4             ....                   18                  ....                      ....

                          5             12                   ....                  ....                       31


(Q9) Complete the following table :                            

    Output (units)         TC (Rs.)        AVC (Rs.)        MC (Rs.)     AFC (Rs.)

                       0             30                          ....                  ....             .... 

                       1             ....                                                  25             30

                       2             78                            ...                -----             ....

                       3              ....                          23                -----             10

                       4             ....                          -----                 23            ----

                       5             150                         ....                 ....                6


(Q10)   Output (units)         MC (Rs.)        AVC (Rs.)        TC (Rs.)     AFC (Rs.)

                                  1              60                    ----                     120             ---- 

                                  2              ----                 ....                       174              ---- 

                                  3              ----                 54                       -----              ----     

                                  4              54                  ----                      -----             15

                                  5              -----                 57                       345             ----  


CBSE 2018

(Q1) Define Fixed Cost.  (1M) 

(Q2) When the total fixed cost of producing 100 units is Rs. 30 and the average variable cost Rs. 3, total cost is : (Choose the correct alternative)  (1M)

(a) Rs. 3        (b) Rs. 30        (c) Rs. 270        (d) Rs. 330

(Q3) Define opportunity cost.    

(Q4)  At what level of production is total cost equal to total fixed cost ?            (1M)

Ans: At zero level of output 

(Q5) Draw Average Variable Cost (AVC), Average Total Cost (ATC) and Marginal Cost (MC) curves in a single diagram. State the relation between MC curve and AVC & ATC curves (6M)

Examiners please check : 

(a) MC curves intersects ATC and AVC curves at their minimum points. 

(b) Vertical distance between ATC curve and AVC curve goes on declining as output increases.    (3 + 3)


Relationship among MC,AVC & AC : 

  When MC < ATC or AVC ,  ATC or AVC falls 

             MC = ATC or AVC ,  ATC or AVC constant 

             MC > ATC or AVC , ATC or AVC rises 


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