CBSE Class 12 Economics Producers Behaviour And Supply To Economics Assignment

Question. Why is AC curve in the short run U-shaped?
Answer. AC curve is U-shaped in short run due to operation of law of returns to factors (i.e., law of variable proportion). Initially production is subject to law of increasing returns (i.e. decreasing cost), then law of constant return (i.e. constant cost) and ultimately to law of diminishing return (i.e. increasing cost). As output is increased, AC first falls, reaches its minimum and then rises. Hence, AC curves become Ushaped.

Question. How do changes in MR affect TR?
Answer. 1. If MR increases, TR increases at increasing rate.
2. If MR is constant, TR increases at constant rate.
3. If MR falls, TR increases at diminishing rate.

Question. What is MR? How is it related to AR?
Answer. MR refers to the change in TR due to sale of an additional unit.
Relation –
1. If AR (Price) is constant, MR = AR
2. If AR (Price) falls, MR < AR.
3. If AR (Price) rises, MR > AR.

Question. What will be the price elasticity of supply if the supply curve is a positively sloped straight line?
Answer. Es = 1 if the curve starts from the origin point.
Es>1 if the curve starts from the y-axis and E<1 if the curve starts from the x-axis.

Question. Define marginal revenue. State the relation between marginal revenue and average revenue when a firm:
(i) is able to sell more quantity of output at the same price.
(ii) is able to sell more quantity of output only by lowering the price.
Answer. Marginal revenue is the addition to total revenue from producing one more unit of output.
1. MR = AR at all levels of the output. (In case of perfect competitive market)
2. MR will be less than AR at all levels of the output. (In case of monopoly and monopolistic market)

Question. Explain how do the following determine price elasticity of supply:
(i) Nature of the good (ii) Time period.
Answer. 1. Nature of Commodity - Elasticity of industrial goods is more than that of agricultural goods. Similarly supply of durable goods e.g. table is more elastic than that of perishable goods e.g. vegetables.
2. Time Period- Generally elasticity of supply is more in the long period than in shorter period of time. The reason is that in the long period, all adjustments to the changed price can be made easily and supply of commodity can be varied accordingly.

Question. With the help of example distinguish between total fixed cost and total variable cost.

Answer. 

 

Question. Explain the likely behaviour of total product under the stage of increasing return to a factor with the help of numerical example.

Answer. Increasing return to a factor is the first phase of the Law of return to a factor. When more and more units of a variable factor is combined with fixed factor up to a certain level total physical product increases with increasing rate.