MP Board Class 12th Economics Unit 3 Producer Behaviour And Supply Important Questions

MP Board Class 12th Economics Important Questions Unit 3 Producer Behaviour And Supply with pdf solutions file.

Micro Economics Producer Behaviour And Supply Important Questions

Micro Economics Producer Behaviour And Supply Objective Type Questions

Question 1. Choose the correct answers:

Question 1. There are factors of productions:
(a) Two
(b) Three
(c) Four
(d) Five
Answer:
(d) Five

Question 2. Fixed cost is also known as:
(a) Variable cost
(b) Actual cost (c) Supplementary cost
(d) Short-term cost
Answer:
(c) Supplementary cost

Question 3. Supply falls on the same price when:
(a) Where there is decrease in supply
(b) When there is contraction in supply
(c) When supply increases
(d) When there is expansion in supply.
Answer:
(a) Where there is decrease in supply

Question 4. Active factor of production:
(a) Capital
(b) Labour
(c) Land
(d) None of these.
Answer:
(b) Labour

Question 5. In the short-run following factors are included in the process of production:
(a) Fixed factors
(b) Variable factors
(c) Both (a) and (b)
(d) None of these.
Answer:
(c) Both (a) and (b)

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Question 2. Fill in the blanks:

  1. Short-term production function is known as ……………
  2. Returns to scale is related to ……………
  3. Cost incurred in per unit production is ……………
  4. Increase in income from a unit of production is called ……………
  5. A producer is in the state of equilibrium when he earns ……………
  6. Law of supply shows …………… relation between price and supply.
  7. The elasticity of supply for milk and related good is ……………

Answer:

  1. Law of variable proportion
  2. Long term
  3. Average cost
  4. Marginal cost
  5. Profit
  6. Direct
  7. Elastic.

Question 3. State true or false:

  1. Rent theory of Ricardo is based on the law of Diminishing returns.
  2. Law of decreasing returns to scale arises due to Non-divisibility.
  3. Fixed cost is also known as supplementary cost.
  4. In case of perfect competition, a firm attains maximum satisfaction when MC curve cut MR curve.
  5. There is inverse relation between price and supply.
  6. The supply of perishable goods is inelastic.
  7. There are four laws of production.

Answer:

  1. True
  2. False
  3. True
  4. False
  5. False
  6. True
  7. False.

Question 4. Match the following:

  1. Causes for the operation of the law of diminishing returns (a) Firms’s equilibrium
  2. Long term process (b) Imperfect substitute of factors of production
  3. Marginal Revenue = Average Revenue (c) Return to scale
  4. Elasticity of supply (d ,=1
  5. Elastic supply (e) Proportionate change in supply proportionate change in price.

Answer:

  1. (b)
  2. (c)
  3. (a)
  4. (e)
  5. (d).

Question 5. Answer the following in one word/sentence:

  1. Which cost is known as Transferable income?
  2. Name the total of fixed cost and variable cost.
  3. If the price decreases slightly, supply becomes zero, what is it known as?
  4. What is addition to total revenue by the sale of an additional unit of commodity known as?
  5. What profit does a firm earn in the state of equilibrium?

Answer:

  1. Opportunity cost
  2. Total cost
  3. Perfectly elastic
  4. Marginal revenue
  5. Maxi- mum.

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Producer Behaviour And Supply Very Short Answer Type Questions

Question 1. What is production function?
Answer: Production function refers to the functional relationship between the quantity of goods produced and factors of production.

Question 2. What is the total product of an input?
Answer: Total product means the total quantity of goods produced by a firm during a given period of time with given inputs.
TP = AP x Number of variable factor (L) or TP = ∑MP – AP x Q.

Question 3. What is average product of an input?
Answer: Average product is defined as the output produced per unit of variable input. Calculated as:
AP = TP/L or AP = TP/Q.

Question 4. What is the marginal product of an input?
Answer: Marginal product refers to additional output produced, when one more unit of variable factor is employed.
MP = TPn – TPn -1.
MP = Change in output/Change in input
MP = ∆q / ∆ x 1.

Question 5. What is the law of diminishing marginal product?
Answer: Law of diminishing marginal product means that when more and more units of a variable factors are employed along with a fixed factor, the marginal product of the factor must fall.

Question 6. What is the law of variable proportion?
Answer: The law which exhibits the relationship between the units of variable factor (Keeping all other factors constant) and the amount of output in the short is known as the law of variable proportion.

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Question 7. When does a production function satisfy constant returns to scale?
Answer:
A production function satisfy constant returns to a scale when proportional increase in all inputs results in an increase in input by the same proportion.

Question 8. When does a product function satisfy increasing returns to scale?
Answer: Production function satisfy increasing returns to scale when a proportional increase in all inputs result in increase in output by more than the proportions.

Question 9. When does a production function satisfy decreasing return to a scale?
Answer:
A production function satisfy decreasing return to scale when a proportional increase in all inputs result in an increase in output by less than proportions.

Question 10. What do you mean by production cost?
Answer:
Production cost refers to all sorts of monetary expenditure incurred in the production of the commodity.

Question 11. What is fixed cost or supplementary cost?
Answer:
The payment for fixed factors of production in the short-run is known as fixed cost. Fixed cost does not change with the change in the quantity of production, e.g., Rent of ‘ the factory, insurance, premium, etc.

Question 12. What is variable cost or prime cost?
Answer:
Variable cost or Prime cost:
Variable cost refers to those cost which are incurred by a firm for purchasing variables inputs like raw materials, labor fuel, electric power etc. These cost vary with the variation in the quantity produced. If the production is increased, variable cost will also increase and if the production is decreased, the variable cost will also decrease.

Question 13. What is total cost?
Answer:
Total cost:
The total expenditure incurred by a firm for the production of a specific quantity of a commodity is called total cost of production. The total cost increases with the increase in the quantity produced. As the production increases, total cost also increases.

Question 15. What is opportunity cost?
Answer:
Opportunity cost is defined as the value of a factor in its next best alternative use or it is the cost of forgone alternatives. It is also defined as value of next best use to which that resource could be put.

Question 16. What is implicit cost?
Answer:
Implicit costs are unrecognized costs that a firm realizes when it uses its assets and resources for one project over another. Implicit cost includes wages of the labor, rent of building, depreciation charges for machines, etc.

Question 17. What is explicit cost?
Answer:
Explicit cost refers to all those expenses made by a firm to buy goods directly. They include payments for raw material, taxes and depreciation charges, advertisement, etc.

Producer Behavior And Supply Short Answer Type Questions

Question 1. Why cost curves are ‘U’ shaped ? Give reasons.
Answer:
The important reason of beings ‘U’ shape of cost curve is, the benefits of large scale production and internal surplus of the firm. These benefits can be divided into four parts:

1. Savings in Lab-our:
Division of Lab-our and specialization is used in large scale production. It increases the efficiency and working capacity of the labor and reduces the per unit cost of production.

2. Savings in Marketing:
Selling cost is not increased in the proportion of productions. As a result per unit cost is again reduced. If a firm doubles its production then its selling expenditure like advertisement etc. will not be doubled. Hence, it will enjoy the benefit of large scale economy.

3. Managerial Savings:
Managerial expenditures decreases with the increase in the production, which is termed as managerial savings. An efficient manager, manages the business affair in the same capacity even if the volume of production increases. Hence, per unit cost is again reduced.

4. Technical Savings:
Improvement in production technology results into technical savings. Use of modern and advance technology increases production on one hand and on the other hand, it reduces per unit cost of production. The main cause of this technical saving is extension of technical cost on more units produced. Thus, from the above description it is clear that cost curves which are directly concerned with the production is shape in U letter of English alphabet.

Question 2. Discuss the relation between Average Revenue and Marginal Revenue.
Answer: Following relationship exists between AR and MR:

  1. AR increases as long as MR is higher than AR and when MR > AR, AR increases.
  2. AR is maximum and constant when MR is equal to AR.
  3. AR falls when MR is less than AR.
  4. MP can be positive, zero and negative but AP is always positive.

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Question 3. When is a consumer in a state of equilibrium?
Answer:
A producer is in a state of equilibrium, if he is earning maximum profit or has profit maximization. A producer earns maximum profit where.
Profit = TR – TC, where TR>TC a producer earns abnormal profit and where TR < TC loss is also beard by the producer only.

Question 4. What is meant by supply?
Answer:
Supply refers to the quantity of a commodity which a producer or a seller or a firm is willing to sell in the market at a particular price during a given period of time.

Question 5. What is meant by supply schedule?
Answer:
Supply schedule is a tabular statement showing various quantities of a commodity being supplied at various levels of price during a given period of time. Supply schedule is of two types.

1. Individual supply schedule:
It refers to supply schedule of an individual firm in the market it shows different quantities supplied by a firm at different prices of a comm-oddities.

2. Market supply schedule:
It refers to tabular statement showing various quantities of a commodity that all the producers are willing to sell at various levels of price, during given period of time.

Question 6. What is a supply curve?
Answer:
The supply curve is a graphical representation of the relationship between the price of a good or service and the quantity supplied for a given period of time. In a typical representation the price will appear on the left vertical axis, the quantity supplied on the horizontal axis. The supply curve has two aspects:

  1. Individual supply curve,
  2. Market supply curve.

1. Individual supply curve:
Individual supply curve is a graphic presentation of supply schedule of an individual firm in the market.

2. Market supply curve:
Market supply curve is a graphic presentation of market supply schedule.

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Question 7. What are the causes of movement along the supply curve and shifting of supply curve ?
Answer:
When quantity supplied of a commodity changes due to change in its own price, assuming other things being equal, it is known as change in quantity supplied. When the change in supply is due to factors other than the price of the commodity, it is known as increase or decrease in supply. In order to understand the movement along the supply curve we have to understand two possibilities.

  1. Increase in supply
  2. Decrease in supply.

When due to changes in factors, other than price, more quantity is supplied, it is known as increase or extension in supply, inverse of this is known as decrease in supply or contraction of supply.

Question 8. What are the factors affecting elasticity of supply?
Answer:
The factors affecting elasticity of supply are:

  1. Nature of the commodity
  2. Cost of production
  3. Time period
  4. Techniques of production
  5. Nature of inputs used
  6. Natural constraints
  7. Risk taking
  8. Ability and interest of the producers.

Question 9. Write characteristic features of Average fixed cost.
Answer: Characteristic feature of average fixed cost are:

  1. It slopes downward to the right from left because the total fixed cost is fixed and as the quantity of production increases, the average fixed cost decreases.
  2. In the beginning, the average fixed cost slopes speedily and there after gradually.
  3. It does not touch the axis and so it is in the shape of rectangular hyperbola.
  4. It never becomes zero.
Producer Behavior And Supply Long Answer Type Questions

Question 1. Explain the concepts of Average fixed costs, Average variable costs and Average total costs.
Answer: In the short period, average costs are of three types:

  1. Average fixed costs
  2. Average variable costs
  3. Average total costs.

1. Average fixed costs:
If the total fixed costs is divided by the quantity produced, the quotient is average fixed cost. It can be expressed as:
AFC =TFCQ
Hence, AFC = Average Fixed Cost,
TFC = Total Fixed Cost,
Q = Quantity produced.

2. Average variable costs:
If we divide the total variable cost by the quantity produced, the quotient is average variable cost. It can be expressed as:
AVC = TVCQ
Here, AVC = Average Variable Cost
TVC = Total Variable Cost
Q = Quantity produced.

The average variable cost depends upon the average productivity of variable factors used in the production of a commodity. In the initial stage, the productivity increases, then remains constants and thereafter it tends to decrease. When the average productivity of variable factors increase, the average variable cost tends”to decrees and becomes constant to its minimum point. When the average productivity of variable factors starts decreasing, the average variable cost tends to increase. Thus, there is an inverse relation between productivity and cost.

3. Average Total Cost:
If we divide the total cost by the quantity produced the quotient is average total cost. It may be expressed as under:
ATC = TCC
Here, ATC = Average Total Cost,
TC = Total Cost
Q = Quantity produced.
In short period:
Total Cost = Total Fixed Cost + Total Variable Cost
ATC = TCQ
ATC = TFC+TVCQ
ATC = TFCQ + TVCQ
ATC = AFC + AVC

Question 2. What do you mean by equilibrium of the firm. Discuss its main features.
Answer:
A firm is said to be in equilibrium when it has no incentive either to expand or to contract its output. A firm would not like to change its level of output only when it is earning maximum money profits. Hence, equilibrium is a point where firm earns maximum money profit.
Here, TR-TC is maximum.

Following are the feature of firm:

  1. No change in the price of quantity of the product- In case of equilibrium, the firm does not make any change in the amount of production or value of the item. Thus, there is absence of any change.
  2. Maximum profit: A firm receives maximum benefit in its equilibrium position and does not want to take any kind of risk.
  3. Minimizing production cost: In its equilibrium position firm tries to minimize production cost and increase profit.
  4. The firm’s equilibrium can be achieved by using total, total revenue and using marginal analysis method. There is no difference between the pricing of the product produced during equilibrium position of the firm.

Question 3. Let the production of a firm be, Q = 2L2 K2. Find out the maximum possible output that the firm can produce with 5 unit of L and 2 units of K. What is the maxi¬mum possible output that the firm can produce with zero unit of L and 10 units of K.
Solution:
Equation, q =2 L2 K 2
Here, L= 5
K = 2
Given: q = 2 (5) 2 x (2) 2
or q = 2 (25) (4)
or q = 200 units
So, the maximum possible output will be 200 units.
In the second state:
L = 0, K = 2
q = 2 x (10) 2 x (10) 2
q = 2 x 0 x 100
q = 0
So, the maximum possible output will be zero. The maximum output would be zero with zero unit of L and 10 units of K. The reason is that the production function, our assumption is that if any input becomes zero, then the production would also be zero. Since, here labor is zero, the output would also be zero.

Question 4. Find out the maximum possible output for a firm with zero unit of L and 10 units of K when its production function is Q = 5L + 2K.
Solution:
Equation,
q = 5L+2K L = 10,
K = 10
Given: q = 5L + 2K,
q = 5(0) + 2(10) q = 0 + 20
q = 20
So, the maximum possible output will be 20. In production function, our assumption is that if any input becomes zero, the production would also be zero. Since, here labor is 20, the output would also be 20.

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