Higher Order Thinking Skills Questions - Producer Behavior and Supply - Economics Class 11 - Commerce PDF Download

4. When there are diminishing returns to a factor marginal and total products always fall.

Ans: False.
Explanation: Under diminishing returns, only marginal product (MP) falls. Total product (TPP) continues to increase as long as MP remains positive; it rises at a decreasing rate and falls only when MP turns negative.

5. Calculate MP for the following.

Ans: Marginal product (MP) is the change in total product when one more unit of the variable factor is employed. Using the changes in TPP shown in the table (from the image), the MP values are:
0, 5, 8, 10, 5, 0, -4.
Explanation: Each MP value is obtained by subtracting the previous TPP from the current TPP. For example, if TPP rises from 0 to 5 when the first unit is added, MP = 5; if the next increase in TPP is 8, MP = 8, and so on. A negative MP (-4) means that adding that unit reduced total output.

HOTS

Q. Why AFC curve never touches 'x' axis though it lies very close to x axis?

Ans: Because total fixed cost (TFC) is always positive and AFC = TFC / Q. As output Q increases, AFC falls and approaches zero, but it can never be exactly zero unless TFC were zero. Since TFC > 0 in practice, the AFC curve gets arbitrarily close to the x-axis but never touches it.

Q. Why AVC and AFC always lie below AC?

Ans: Because average cost (AC) equals the sum of average variable cost (AVC) and average fixed cost (AFC): AC = AVC + AFC. Since AFC is non-negative, AC is always greater than or equal to AVC; similarly, AC is greater than or equal to AFC. Therefore AVC and AFC lie below AC (except in special cases where one component is zero).

Q. Why TVC curve start from origin?

Ans: Because total variable cost (TVC) depends on the level of output. At zero output no variable inputs are used, so TVC = 0. Hence the TVC curve starts at the origin.

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 costs are costs that must be paid irrespective of output (for example, rent, insurance, interest). They are incurred even when output is zero, so TFC is not zero at zero output.

HOTS

Q. Can MR be negative or zero.

Ans: Yes.
Explanation: Marginal revenue (MR) can be zero when total revenue (TR) reaches its maximum. MR becomes negative when additional output reduces TR - that is, when selling one more unit lowers overall revenue. This typically happens when lowering price to sell extra units reduces revenue more than the additional quantity sold adds.

Q. If all units are sold at same price how will it affect AR and MR?

Ans: If every unit is sold at the same price (as in perfect competition), average revenue (AR) equals marginal revenue (MR) and both are equal to the market price at all levels of output.

Q. What is price line?

Ans: The price line is the same as the AR line in perfect competition. It is horizontal to the x-axis because price (and therefore AR and MR) remains constant regardless of output.

Q. Can TR be a horizontal Straight line?

Ans: Yes.
Explanation: Total revenue (TR) is a horizontal straight line when marginal revenue (MR) is zero. In that case, selling additional units neither raises nor lowers TR, so TR remains constant over a range of output.

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 when MR is increasing because each extra unit adds more to TR than the previous one.
b) TR increases at a diminishing rate when MR is falling but positive, since additional units still raise TR but by smaller amounts.
c) TR decreases when MR is negative because extra output reduces total revenue.

Q. Why AR is more elastic in monopolistic competition than monopoly?

Ans: In monopolistic competition there are close substitutes for a firm's product, so consumers can easily switch to competitors when price rises; this makes the AR (demand) curve more elastic. In a monopoly there are few or no close substitutes, so the demand facing the firm is less elastic.

Q. Why TR is 45 ⁰ angle in perfect competition market?

Ans: In perfect competition the price is constant and AR = MR = price. Therefore TR rises in direct proportion to output (TR = price × quantity). When price and quantity are measured in equal scales, the TR curve is a straight line through the origin; in standard diagrams this is shown as a 45° line to indicate constant slope.

Q. Can there be Break- even point  with AR = AC