INDIAN SCHOOL AL WADI AL KABIR

DEPARTMENT OF COMMERCE

THEORY OF PRODUCTION, COST, REVENUE

1 mark questions:
1. Suppose TR is rising at a constant rate as more and more units of a commodity are
sold. Will MR be greater than equal to or less than AR?
2. What is the meaning of returns to scale?
3. What is the behaviour of the AVC as output increases?
4. Give the meaning of returns to a factor.
5. Define marginal cost.
6. Define marginal product.
7. When 5 units of a good are sold, TR is Rs100. When 6 units are sold, MR is Rs 8. At
what price 6 units are sold? (Rs 18)
8. Do ATC and AVC curves intersect? Give reasons.
9. Why does FC not influence MC?
10. A producer borrows money and opens a shop. The shop premises are owned by him.
Identify the explicit and implicit costs from this information.
11. What is money cost?
A: It refers to the sum of all monetary expenses incurred by the producer for
producing a commodity.
12. Can there be some fixed cost in the long run? If not, why.
3.4 marks questions:
13. Define Revenue. State the relation between MR and AR.
14. What does the law of variable proportion show? Explain.
15. Distinguish between returns to a factor and returns to scale.
16. Draw TVC, TC and TFC curves in a single diagram.
17. Explain the relationship between MC and AC.
18. Distinguish between explicit cost and implicit costs and give examples.
19. What are the TFC, TVC and TC of a firm? How are they related?
20. Explain the relation between MP and TP of an input.
21. Explain with the help of a TP curve the meaning of increasing returns to a factor.
22. Giving reasons state whether the following statements are true or false:
i. Increase in TP always indicates that there are increasing returns to a factor.
ii. When there are diminishing returns to a factor marginal and total product both
always fall.
5 to 6 marks questions:
23. Explain the law of Variable proportion. Use diagram.
24. State the phases of changes in TP in the Law of Variable Proportion. Explain the
reasons behind each phase. Use diagram.
25. State and explain the Law of Diminishing Returns to a factor.
Hint: diminishing returns to factor operate due to the following reasons:
i. Fixity of factors

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 ii. Factors as imperfect substitutes of each other.
iii. Poor coordination among different factors.
NUMERICALS:
1. The following table gives the MP of a particular product: Calculate TP and MP when it is
known that TP at zero level of Lab is zero:
Lab 1 2 3 4 5 6
MP 50 110 150 180 180 150
2. Complete the following table:
Lab 0 1 2 3 4 5 6
TP 0 20 - -88 - - -
MP - - 22 - - 17 -
AP 0 - - 22 - - 20
3. Identify the three phases of the Law of Variable Proportions from the following schedule:
Units of Lab 1 2 3 4 5
Output 20 50 70 80 60
4. Compute TVC, TFC, AVC, AFC, ATC, MC from the following data if AFC at one unit of
production is Rs 60:
Output 1 2 3 4 5 6 7 8
TC 90 105 115 120 135 160 200 260
5. Suppose a firm’s total fixed cost is Rs 100 and the MC schedule is the following:
Output 1 2 3 4 5 6 7
MC 10 20 30 40 50 60 70
i. Is the MC U shaped? ii. Derive AVC schedule. Will AVC curve be U shaped?
HOTS:

1. When AP is maximum, what is the relation between MP and AP?

2. Classify into FC and VC: Salary of permanent staff, excise duty, sales tax
3. A producer borrows money and opens a shop. The shop premise is owned by him.
Identify the implicit and explicit cost from this information.
4. A farmer takes a farm on rent and carries on farming with his own family
members. Identify the explicit and implicit cost.
5. A firm’s average fixed cost , when it produces 2 units is Rs 30. Its ATC schedule is given
below:

Output (units) 1 2 3

ATC (Units) 80 48 40

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Calculate its MC and AVC at each level of output.

6. Find out TVC, AFC, AVC, SAC, SMC

Output TFC TC TVC AFC AVC SAC SMC

0 20

1 30

2 38

3 20 44

4 49

5 53

6 59

7 67

8 80

9 95

10 115

7. Following table shows a TC schedule. What is the TFC schedule? Find AVC, SMC, TVC,
AFC, SAC.
Output TC TFC TVC AVC AFC SAC SMC

1 30

2 45

3 55 10

4 70

5 90

8. A firm’s SMC schedule is shown below: If TFC= Rs 100, Find TC, TVC, AVC.
Output SMC TFC TC TVC AVC

0 0

1 500

2 300 100

3 200

4 300

5 500

6 800

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9. From the following data calculate TFC, AFC, TVC, AVC, ATC, SMC:

Output TC TFC AFC TVC AVC ATC SMC

0 60

1 90

2 100

3 105

4 115

5 135

6 180

10. From the following data, find out ATC, SMC when TFC=Rs 20.
Output TFC AVC ATC SMC

1 10

2 20 9

3 8

Note: TVC of a good is simply the cumulative sum of MC of the no. of units produced.

11. Calculate AVC:

Output SMC AVC

1 80

2 70

3 72

4 78

12. Find out ATC & AVC when TFC of the firm is Rs 120:
Output SMC

1 40

2 30

3 26

13. TFC of a firm is Rs 50 and TVC is given below. Find ATC, SMC.
Output TVC TFC

1 80

4
2 150 50

3 235

4 330

14. Calculate AFC & AVC and state the MC of the 4th unit:
Output TVC TFC

0 80

1 102

2 122 80

3 140

4 156

15. Complete the following table:

AC Output SMC TC TFC AFC TVC AVC

_ 0 0 50

70 1 20 70

43 2 - 86

- 3 - 98

- 4 10 108

16. Calculate AR & MR when TR is given:

Output TR

1 10

2 20

3 30

4 40

5 50

17. Calculate TR & MR when AR is given:

Output AR TR MR

1 10

2 9

3 8

5
4 7

18. Complete the following table:

Output TC AVC MC AFC

0 30

1 --- --- 25 30

2 78 --- --- ---

3 --- 23 --- 10

TIME SERIES 5 marks questions

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TIME SERIES 10 marks questions

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