CBSE Class 12th Economic exam is scheduled for 13th March 2020. In this article we have complied a list of important questions from Chapter 3 of Part A (Microeconomics): Production and Costs. Questions given below are important questions and are expected to be asked in Class 12 Economics board exam 2019-20.
Ques 1 Which of the following statements are true or false ? Give valid reasons in support of your answer.
(a) Average cost curve cuts Average variable cost curve, at its minimum level.
(b) Average product curve and Marginal product curve are ‘U-shaped’ curves.
(c) Under all market conditions, Average revenue and Marginal revenue are equal to each other.
(d) Total cost curve and Total variable cost curve are parallel to each other.
Solution: a) The given statement is false. Average Cost curve is the vertical summation of Average Variable Cost and Average Fixed Cost(AC = AFC + AVC). Since, Average Fixed Cost cannot be zero (AFC ≠ 0) the two curves would never touch each other.
b) The given statement is false. As per Laws of Returns to a Factor, Average Product Curve and Marginal Product Curve both rise and then tend to fall. Thus, the two curves are inverted ‘U’ shaped curves and not ‘U’ shaped curves.
c) The given statement is false.This condition is obtained in perfect competition market a price remains constant only under the perfect competition a market.
d) The given statement is true. The difference of the two is represented by Total Fixed Cost (TFC). TFC remains constant at all levels of output. It represents the vertical distance between the two curves making them parallel to each other.
Ques 2 The marginal product curve in the input-output plane, looks like ____________ : (Choose the correct alternative)
(a) a ‘U’ shaped curve
(b) an inverse ‘U’ shaped curve
(c) an inverse ‘S’ shaped curve
(d) an ‘S’ shaped curve
Solution: b) an inverse ‘U’ shaped curve
Ques 3 The average product curve in the input-output plane, will be __________. (Choose the correct alternative)
(a) an ‘S’ shaped curve
(b) an inverse ‘S’ shaped curve
(c) a ‘U’ shaped curve
(d) an inverse ‘U’ shaped curve
Solution: (d) an inverse ‘U’ shaped curve.
Ques 4 Which of the following formula is correct for calculating marginal cost ? (Choose the correct alternative)
(a) MCN = TFCn – TFCN – 1
(b) MCN = ACN – ACN – 1
(c) MCN = AVCN – AVCn – 1
(d) MCN = TCn – TCN – 1
Solution: (d) MCn=TCn-TCn-1
Ques 5 Under imperfect competition, Average Revenue (AR) remains _________ Marginal Revenue (MR). (Fill up the blank)
Solution: above (higher/ greater than/ more than )
Ques 6 For a firm to be in equilibrium, Marginal Revenue (MR) and Marginal Cost (MC) must be _________ and beyond that level of output Marginal Cost must be _________.’’ (Fill up the blank)
Solution: equal, rising
Ques 7 State any two examples of variable cost and fixed cost
Solution: Variable Cost: Wages of casual labour, cost of raw material
Fixed Cost: Rent of premises, Salary of permanent employee
Ques 8 Average fixed cost curve ________. (Choose the correct alternative)
(a) is a straight line parallel to X-axis.
(b) is straight line parallel to Y-axis.
(c) falls, as more units are produced
(d) rises, as more units are produced
Solution: (c) falls, as more units are produced.
Ques 9 If the average fixed cost of producing 4 units of output is Rs. 60, then the value of total fixed cost for producing 5 units will be _____________ . (Fill up the blank)
Solution: Rs. 240
Ques 10 Explain the relation between Average Cost (AC) curve and
Marginal Cost (MC) curve using diagram.
Solution: i) When MC < AC, AC decreases (this happens up to Q2 level of output)
ii) When MC = AC, AC is constant and at its minimum(at Q2 level of output)
iii) when MC > AC, AC increases (beyond Q2 level of output)