CBSE Class 12 Economics Production and Costs VBQs

Question. In the short run Total Product Price changes with the change in which of the following factors.
1. Economic Cost
2. Fixed Cost
3. All the factors
4. Variable Cost
Answer: Variable Cost

Question. How is Total Physical Product derived from Marginal Physical Product?
1. Cumulative addition
2. Cumulative subtraction
3. Cumulative product
4. Cumulative Division
Answer: Cumulative addition

Question. Production function shows a technical relationship between physical input and output of a commodity.
1. A technological relationship between inputs and cost
2. The economic relationship between inputs and cost
3. A technological relationship between inputs and output
4. A technological relationship between inputs and price
Answer: A technological relationship between inputs and output

Question. Does Total Physical Product increase only when Marginal Physical Product increases?
Answer: False, because Total Physical Product increases Marginal Physical Product decreases but remains positive.

Question. Increase in Total Physical Product indicates that there are increasing returns to a factor.
Answer: No, the total physical product also rises when the returns to a factor decrease.

Question. Evaluate the marginal product for the following.

Answer: 

Question. What is a change in quantity demanded?
Answer: It is a change along a demand curve. The change is due to a change in price and quantity of a commodity. The two types of change in quantity demand are Extension in demand and Contraction in demand.

Question. Explain the relation between Average Cost and Marginal Cost.
Answer: The relation between Average Cost and Marginal Cost
• When Average Cost decreases, Marginal Cost declines faster than the Average Cost. So, that Marginal Cost curve remains lower than the Average Cost curve. This means Average Cost > Marginal Cost.
• When Average Cost increases, Marginal Cost rises faster than the Average Cost. SO, that MC curve is above the Average Cost curve
• Marginal Cost curve intersects Average Cost curve from its lowest point. When the average curve is minimum then Marginal Cost = Average Cost.

Very Short Answer Type Questions

Question. What happens to TP when MP is zero?
Answer: TP is maximum.

Question. As the variable input is increased by one unit, total output falls. What would you say about of marginal productivity labour?
Answer: Marginal productivity of labour is negative.

Question. Why does fixed cost not influence marginal cost?
Answer: Because marginal cost does not include fixed cost.

Question. Show that average revenue equals price.
Answer: 

Question. What effect does an increase in excise tax have on the supply curve?
Answer: Supply curve will shift to the left.

Question. When is TPP maximum in relation to MPP?
Answer: When MPP is zero.

Question. How does fall in MPP affect TPP?
Answer: TPP increases at decreasing rate.

Question. Why does average cost fall as output rises?
Answer: AC falls due to operation of the law of increasing returns to a factor as output rises.

Question. What would be the effect of increase in the output on the TFC?
Answer: There would not be any effect of increase in the output on the TFC, It will be constant at different levels of production.

Question. What is the price elasticity of supply of a commodity whose straight line supply curve passes through the origin forming an angle of 75º?
Answer: Price elasticity of supply will be equal to one when a straight line supply curve passes through the origin; angle does not matter anything.

Question. The shape of the Total Physical Product short run is
1. Inverse U-Shaped
2. U-Shaped
3. Hyperbola
4. V-Shaped
Answer: Inverse U-Shaped

Question. What will be the marginal product when the total product is maximum?
Answer: Marginal Product will be zero when the total product is maximum.

Question. What do you mean by production?
Answer: Production is the method of producing or developing goods or services in large quantities with the help of various materials.

Question. When the returns to a factor decline the marginal and the total product also decline.
Answer: False, when returns to a factor decline only Marginal Physical Product declines.

Question. Why Average Fixed Cost curve never touches “x” axis though lies very close to the x-axis?
Answer: The Average Fixed Cost curve never touches “x” axis though lies very close to the x-axis because Total Fixed Cost can never be zero.

Question. When TVC is zero at zero levels of output, what happens to TFC or why TFC is not zero at zero level od output?
Answer: When TVC is zero at zero levels of output, what happens to TFC or why TFC is not zero at zero levels of output because the fixed cost is to be acquired even at zero levels of output.

Question. Define cost concept. What are the different types of cost?
Answer: The spending experienced on different inputs is known as the cost.
Types of cost
• Money Cost- Total money spent by a company for manufacturing goods.
• Explicit Cost & Implicit Cost- Payment made to an outsider are explicit and self-supplied are implicit cost.
• Real Cost- All hard work, discomforts, sacrifices involved in manufacturing a product is called real cost.
• Opportunity Cost- This the cost for the next best alternative foregone.
• Short Run Cost- Fixed cost- Fixed factors cost Variable Cost– Variable factor cost

Question. Why does average fixed cost fall with increase in output?
Answer: AFC can be calculated from TFC. Which remains constant at all level of output.

Question. Under which situation will MR fall when an additional quantity of a good is sold?
Answer: When per unit price falls by selling an additional unit of a good.

Question. Give one differences between law of supply and price elasticity of supply.
Answer: Law of supply reflects the direction of change in supply where as price elasticity of supply measures the magnitude of change in supply.

Question. Why does a producer moves downward along a supply curve due to decrease in price of commodity?
Answer: Because profit margin of firm (producer) decreases.

Question. When does the supply curve shift rightward while price remains constant.
Answer: When the supply of commodity increases due to change in other factors.

Question. How does the imposition of a tax affect the supply curve of a firm?
Answer: The supply curve will shift to the left side.

Question. Law of Returns to Scaleindicates the responsiveness of total product when all inputs
(a) Remain same
(b) Are changed drastically
(c) Are changed marginally
(d) Are changed proportionately
Answer: D

Question. Identify the correct statement
(a) Average Product is at its maximum when Marginal Product is equal to Average Product
(b) Law of Increasing Returns to Scale relates to the effect of changes in factor proportions
(c) Economies of Scale arise only because of invisibilities of factor proportions
(d) Internal Economies of scale can accrue only to the exporting sector
Answer: A 

Question. In electricity generation plants, when the plant grows too large risks of plant failure with regard to output increase disproportionately. Hence we are talking about which concept of returns to scale?
(a) Constant Returns to Scale
(b) Increasing Returns to Scale
(c) Decreasing Returns to Scale
(d) Balanced Returns to Scale
Answer: C

Question. If the LAC curve falls as output expands, this is due to —
(a) Law of Diminishing Returns
(b) Economies of Scale
(c) Law of Variable Proportions
(d) Diseconomies of Scale
Answer: B

Question. In the initial stages, there will be increasing returns to scale, due to —
(a) Indivisibility of Factors
(b) Specialization in Factors
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer: C

Question. In the initial stages, there will be increasing returns to scale, due to —
(a) Economies in operations
(b) Diseconomies in operations
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer: A

Question. Management Efficiency and Productivity due to creation of different specialised functional departments is an example of —
(a) Internal Economies of Scale
(b) Internal Diseconomies of Scale
(c) External Economies of Scale
(d) External Diseconomies of Scale
Answer: A

Question. specialized equipment and modern techniques of production.
(a) Marketing
(b) Selling
(c) Managerial
(d) Production
Answer: D

Question. Beyond a certain extent, the Firm will start experiencing decreasing returns to scale, due to
(a) Economies in operations
(b) Diseconomies in operations
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer: B

Question. In the very beginning of production, generally the Increasing Returns to scale is found because—
(a) Input is increased
(b) Plant and Machinery will be new
(c) Production Problems are less
(d) Economies of Scale
Answer: D

Question. Due to External Economies of Scale, the Long Run Average Cost (LAC) Curve —
(a) Shifts inward
(b) Remains constant
(c) Shifts outward
(d) Is not affected at all
Answer: A

Question. Problems like managerial difficulties, low employee morale, higher input prices, etc. arising out of large scale operations lead to—
(a) Large Economies of Scale
(b) Pecuniary Economies of Scale
(c) Real Economies of Scale
(d) Diseconomies of Scale
Answer: D

Question. In a small scale rubber plant, factors of production like labour, material and capital are increased by 10% and output increases. It implies that the Firm is experiencing
(a) Constant Returns to Scale
(b) Decreasing Returns to Scale
(c) Increasing Returns to Scale
(d) Increasing as well as decreasi
Answer: C

Question. on the same equipment. The added volume helps in lowering average total costs; it may also allow the Firm to employ different types of equipment that have lower variable costs. These factors lead to —
(a) Production Economies of Scale
(b) Economies of Scale
(c) Pecuniary Economies of Scale
(d) Technical Economies of Scale 
Answer: B

Question. The Law of Returns to Scale operates in —
(a) Medium—run
(b) Short —run
(c) Long—run
(d) All of the above
Answer: C

Question. If Decreasing Returns to Scale are present, then if all inputs are increased by 10% then
(a) Output will also decrease by 10%
(b) Output will increase by 10%
(c) Output will increase by less than 
(d) Output will increase by more than 10%
Answer: C

Question. Growth of Ancillary Industries supplying related goods and services is an example of —
(a) Internal Economies of Scale
(b) Internal Diseconomies of Scale
(c) External Economies of Scale
(d) External Diseconomies of Scale
Answer: C

Question. Due to External Diseconomies of Scale, the Long Run Average Cost (LAC) Curve —
(a) Shifts inward
(b) Remains constant
(c) Shifts outward
(d) Is not affected at all
Answer: C

Question. Long-period production function is related to
(a) Law of variable proportions
(b) Law of returns to scale
(c) Law of diminishing marginal utility
(d) None of these
Answer: B

Question. Inventory Economies are a part of which of the following type of economies of scale?
(a) Production
(b) Selling
(c) Labour
(d) Storage and Transport
Answer: A

Question. Internal and External Economies and Diseconomies of Scale has its impact on —
(a) Long Run Average Cost (LAC) Curve
(b) Short Run Average Cost (SAC) Curve
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer: A

Question. Returns to Scale will be said to be in operation when quantity of —
(a) All inputs are changed
(b) All inputs are changed in already established proportion
(c) All inputs are not changed
(d) One input is changed while quantity of all other inputs remains the same
Answer: A

Question. Delays in internal communication due to complex management structure is an example of —
(a) Internal Economies of Scale
(b) Internal Diseconomies of Scale
(c) External Economies of Scale
(d) External Diseconomies of Scale
Answer: B

Question. Wich a view to increase his production Hari Haran a manufacturer of shoes, increases all the factors of production in his unit by 100%. But at the end of year he finds that instead of an increase of 100%, his production has increased by only 80%.
Which law of returns to scale is operating in this case
(a) Increasing returns to scale
(b) Decreasing returns to scale
(c) Constant returns to scale
(d) None of the above
Answer: B

Question. Diseconomies of Scale refer to —
(a) Forces which reduce the Average Cost of producing a product as the Firm expands the Size of its Plant
(b) Forces which reduce the Marginal Cost of producing a product as the Firm expands the Size of its Plant
(c) Forces which increase the Average Cost of producing a product as the Firm expands the Size of its Plant
(d) Forces which increase the Marginal Cost of producing a product as the Firm the Size of its Plant
Answer: C

Question. The concept 'Returns to scale' is related with
(a) Very short period
(b) Short period
(c) Long period
(d) None of the above
Answer: C

Question. Internal Economies and Diseconomies arise due to
(a) Overall industry—level changes
(b) Changes at the Firm level
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer: B

Question. External Diseconomies may lead to _____
(a) Decrease in cost of technology
(b) External Assistance
(c) Increase in the price of factors of production
(d) None of the above
Answer: C

Question. When there is an increase in all factors of production together in the same ratio, — (a) increases at first, (b) becomes constant thereafter, and (c) starts decreasing beyond a certain level.
(a) Total Product
(b) Average Product
(c) Marginal Product
(d) All of the above
Answer: C

Question. In the , the quantities of all factors of
(a) Medium—run
(b) Short —run
(c) Long—run
(d) All of the above
Answer: C

Question. Which of the following is not a type of pecuniary Economies of Scale?
(a) Reduction in prices of raw materials, as a result of discounts due to large volumes from the Suppliers
(b) Lower costs of external finance as banks often offer loans to large Firms at a lower rate of interest
(c) Lower advertising rates for large Firms if they advertise at large scales
(d) Economies achieved by increasing the scale of output mainly due to division of labour
Answer: D

Question. The Law of Returns to Scale deals with —
(a) Output Quantities
(b) Monetary Values
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer: A

Question. Difficulties of management, co—ordination and control due to bigger Plant Size is an example of —
(a) Internal Economies of Scale
(b) Internal Diseconomies of Scale
(c) External Economies of Scale
(d) External Diseconomies of Scale
Answer: B

Question. Availability of cheaper Raw Materials and Capital Equipment in the long—run constitutes —
(a) Internal Economies of Scale
(b) Internal Diseconomies of Scale
(c) External Economies of Scale
(d) External Diseconomies of Scale
Answer: C

Question. Discovery of new technical knowledge and improvements in technology leads to —
(a) Internal Economies of Scale
(b) Internal Diseconomies of Scale
(c) External Economies of Scale
(d) External Diseconomies of Scale
Answer: C

Question. Economies and Diseconomies in operations can be
(a) External
(b) Both (a) and (b)
(c) Neither (a) nor (b)
Answer: B

Question. Internal Economies and Diseconomies are dependent on —
(a) Output level of individual Firms
(b) Output level of the entire industry
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer: A

Question. In the initial stages, when there is an increase in scale, there is increase in output.
(a) Zero
(b) Proportionate
(c) Less than proportionate
(d) More than proportionate
Answer: D

Question. External Economies and Diseconomies are dependent on —
(a) Output level of individual Firms
(b) Output level of the entire industry
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer: B

Question. Which of the following is an important ingredient of Selling Economies?
(a) Advertising Economies
(b) Inventory Economies
(c) Transportation Economies
(d) Storage Economies
Answer: A

Question. economies are associated with the distribution of the product of a Firm.
(a) Manufacturing
(b) Inventory
(c) Production
(d) Selling
Answer: D

Question. A large Firm can offer better security to Bankers and obtain credit easily. This createsfor such Firm.
(a) Internal Economies of Scale
(b) Internal Diseconomies of Scale
(c) External Economies of Scale
(d) External Diseconomies of Scale
Answer: A

Question. When a large Firm makes bulk purchase and obtains its Raw Materials at lower prices than a small size Firm, the large Firm is said to have achieved —
(a) Internal Economies of Scale
(b) Internal Diseconomies of Scale
(c) External Economies of Scale
(d) External Diseconomies of Scale
Answer: A 

Question. Under the Law of Returns to Scale, .......................... is constant.
(a) Output Quantities
(b) Quantities of Variable Factors of Production
(c) Quantities of Variable and Fixed Factors of Production
(d) Proportion between different Factors of Production
Answer: D

Question. Linear Homogeneous Production function is based on
(a) Increasing Returns to Scale
(b) Decreasing Returns to Scale
(c) Constant Returns to Scale
(d) None.
Answer: C

Question. External Economies and Diseconomies arise due to Overall industry—level changes
(a) Changes at the Firm level
(b) Both (a) and (b)
(c) Neither (a) nor (b)
Answer: A

Question. The above data is an example of:
(a) Constant Returns to Scale.
(b) Decreasing Returns to Scale.
(c) Increasing Returns to Scale.
(d) Globalization.
Answer: A

You are given the following data: 

Question. If as a result of 50% increase in all inputs, the output rises by 75%, this is a case of:
(a) Increasing Returns to a Factor
(b) Increasing Returns to Scale
(c) Constant Returns to a Factor
(d) Constant Returns to Scale
Answer: B

Question. In which of the following cases does output double with the doubling of all inputs?
(a) Constant Returns to Scale
(b) Decreasing Returns to Scale
(c) Increasing Returns to Scale
(d) Increasing as well as decreasing returns to Scale
Answer: A

Question. If one unit of labour and one unit of capital give 200 units of output, two units of labour and two units of capital give 400 units of output and 5 units of labour and five units of capital give 1000 units of output then this is a case of:
(a) Constant Returns to Scale.
(b) Increasing Returns to Scale.
(c) Decreasing Returns to Scale.
(d) All of these.
Answer: A

Question. After the stages of constant returns to scale, the Firm will start experiencing —
(a) Still Increasing Returns to Scale
(b) Constant Returns to Scale
(c) Diminishing Returns to Scale
(d) None of the above
Answer: C

Question. The above data is an example of:
(a) Decreasing returns to scale.
(b) Constant returns to scale.
(c) Increasing returns to scale.
(d) Positive fixed costs.
Answer: C

Question. After the initial stages of increasing returns to scale, the Firm will experience —
(a) Still Increasing Returns to Scale
(b) Constant Returns to Scale
(c) Diminishing Returns to Scale
(d) None of the above
Answer: B

Question. If a change in scale inputs leads to a proportional change in the output, it is a case of—
(a) Increasing Returns to Scale
(b) Constant Returns to Scale
(c) Diminishing Returns to Scale
(d) Variable Returns to Scale
Answer: B

Question. External economies can be achieved through—
(a) Foreign trade only
(b) Extension of transport & transport credit* facility
(c) Superior managerial skills
(d) External assistance
Answer: B