Module 2

2 Marks
1. Define Production and Production function.
2. What do you mean by factor of production?
3. What is fixed factor? Distinguish between fixed factor and variable factor.
4. Is the distinguish between fixed factor and variable factor relevant in the long run.
5. Define TP. How is MP different from TP?
6. Distinguish between short run and long run.
7. Define AP. How is it related with TP?
8. What is the relationship between AP and MP?
9. State the law of variable proportion.
10. Explain the meaning of diminishing returns to a factor.
11. State the different phases of change in TP according to the Law of variable proportion.
Where will a rational producer operate?
12. Write down cost function with proper explanation.
13. At zero level of output, can fixed cost be zero? Logically answer.
14. What is individual by the gap between TC curve and TVC curve? Why does it remain
constant?
15. Why is marginal cost independent of fixed cost?
16. Derive TC numerically and graphically.
17. Explain the relationship between MC and AC of a firm with the help of a diagram.
18. Draw AFC curve. Discuss it's shape.
19. Why does the difference between ATC and AVC curves decrease with increase in the
level of output? Explain.
20. Construct a schedule showing the validity of the statement: TC =TFC + TVC
21. Define implicit cost and explicit cost with example.
22. A producer starts a business by investing his own savings and hiring the labour. Identify
implicit and explicit cost from the information with reason.
23. A producer takes a building on rent for carrying out business. He looks after the business
himself without hiring a manager.
(a) Identify the types of costs involved in this situation.
(b) Distinguish between Explicit Cost and Implicit Cost with reference to the above example.
24. Give meaning of 'Returns to a factor ' with example.
25. Discuss MP numerically.
26. How is increasing returns to a factor different from diminishing returns of factors?
27. How is diminishing factors of returns different from negative returns?
28. Which stage is the stage of operation for the producer? Logically discuss.
29. Discuss the relationship between AP and MP curve.
30. Discuss any one reason behind the operation of stage 1
31. Discuss any one reason behind the operation of stage 2
32. Discuss any one reason behind the operation of negative returns.
33. Discuss the shape of MC curve.
34. Discuss the shape of AC curve.
35. Discuss the shape of TC curve.

5 Marks
1. Give an idea of production function. How can it be differently studied? State the outcomes
of the study.
2. Define TP, AP and MP with an example.
3. Distinguish between Fixed Factor and Variable Factor.
4. Discuss TC. How is it different in short run and long run? What is the reason?
5. What do you mean by AFC? Is it fixed throughout the production process?
6. What is MC? How can it be derived from TC? Discuss with numerical example.
7. What is AVC? Why is it u shaped?
8. Discuss the relationship between TC, TVC and TFC with the help of suitable diagram.
9. Discuss the behaviour of MP and TP as more and more units of only one input are
employed keeping other input constant.
10. Define MC, Discuss the relationship between AC and MC with the help of schedule and
diagram.
11. Discuss the operation of stage 1 with reason.
12. Discuss the operation of stage 2 with reason.
13. Discuss the operation of stage 3 with reason.
14. Define: TP, MP and AP with numerical example.
15. Why is MC curve "u' shaped? How is it related to MP?

16. The following table gives the output, fixed cost, and total cost of a firm. Calculate the
Average Cost (AC) at each level of output.

Output (units) Fixed Cost (Rs.) Total Cost (Rs.) Average Cost (Rs.)
1 9 23 ?
2 9 27 ?
3 9 30 ?

17. What do you mean by imperfect factor substitute? How is it a cause of diminishing
returns to a factor?
18. What do you mean by indivisibility? How is it a cause of income returns?
19. Can TP ever fall when more and more units of variable factors are combined with the
fixed factor? Discuss with the help of Law of variable proportion.
20. What do you mean by optimum factor combination. Can it be achieved? What is it's
characteristics?
21. Discuss the relationship between TP and AP diagramatically.
22. Discuss the relationship between TP and MP.
23. A firm uses labour as a variable factor of production. The total product (TP) of labour is
given in the table below. Fill in the values of Average Product (AP) and Marginal Product
(MP). Define the process of calculation.

Units of Labour Total Product (TP) Average Product (AP) Marginal Product (MP)
1 5 ? ?
2 12 ? ?
3 20 ? ?
4 28 ? ?

24. A firm’s Fixed Cost is Rs. 30. The Variable Cost of producing 1, 2, and 3 units of output
is Rs. 20, Rs. 36, and Rs. 51 respectively.
(a) Calculate Total Cost (TC), Average Cost (AC), and Marginal Cost (MC).
(b) Explain with reason why Marginal Cost is derived only from Variable Cost.
25. AFC is rectangular Hyperbola. Discuss the statement.
26. Mention the factor of production.
27. Falling MC corresponds to rising MP and Rising MC corresponds to falling MP.
Discuss.
28. Total Cost at 10 units of output is Rs 55. The Fixed Cost is Rs 5. What will be the average
cost?
29. If the TC of producing 5 units of x is Rs 20 and that of producing 4 units is Rs 15, what
will be the MC?
30. Discuss the shape of the AC curve with diagram and appropriate explanation.

10 Marks
1. Complete the following table:
Output 1 2 3 4
ATC 54 - - 33
AVC 30 24 - -
MC 30 - 24 -

2. a. Why should TP be maximum when MP = 0?

b. Can AP ever be 0 or negative?
c. Can law of variable proportion occur in the long run? Justify.
3. Explain the given concepts: AFC, AVC, AC, MC, and TC.
4. State the law of variable proportions. Discuss the law with the help of schedule and
diagram.
5. A firm's average fixed cost of producing 2 units of a commodity is rs 9 and given
below is its total cost schedule .calculate its average variable cost and marginal
cost for each of the given level of output .
Output 1 2 3
TC 23 27 30

6. Distinguish between i). Implicit cost and explicit cost & ii) Accounting cost and
economic cost. What do you mean by opportunity cost?
7. We know that TC=TFC+TVC.
Prove the identity with the help of schedule and diagram.
8. The following table gives the TC schedule of a firm .It is also given that the AFC
at 4 units of output is Rs 5 .Find the TVC ,TFC ,AVC ,AFC ,MC schedules of the
firm for the corresponding values of output .
Output 1 2 3 4 5 6
TC 50 65 75 95 130 185
9. A firm has a Fixed Cost (FC) = Rs. 20. The table below shows the Variable Cost (VC) at
different levels of output. Complete the table by calculating AFC, AVC, and AC. Discuss the
methods of calculation.

Output (Units) FC VC TC AFC AVC AC

1 20 10 ? ? ? ?
2 20 18 ? ? ? ?
3 20 30 ? ? ? ?
10. Discuss the various types of production costs with the help of schedule and diagram.
11. State the law of variable proportions. Discuss the reasons behind the operation of
stage of increasing returns.
12. State the law of returns to scale with assumptions. Distinguish between returns to a
factor and returns to scale.
13. Complete the following table.
Units of labour: 1 2 3 4 5 6 7
Total product: 20 36 48 56 60 60 56
Average product - - - - - - -
Marginal product - - - - - - -

14. Draw TP, MP, and AP curves on the basis of the given information:
Units of the variable factor: 0 1 2 3 4 5 6 7 8
TP (units) 0 6 20 48 72 80 84 84 80
Discuss the operation of diminishing returns with the help of TP, AP, and MP curves.

15. Draw TC, TFC, TVC, curves on the basis of the following information.

Output (units) 1 2 3 4
TC 350 450 610 820
TFC 100 100 100 100
TVC 250 350 510 720

16. Discuss with reasons.

a. AP increases so long as MP>AP
b. AP decreases when MP<AP
c. AP is maximum when AP=MP
d. AP continues to be positive till the end.

17. As a producer, you are managing your firm. Give 2 examples each of explicit cost,
implicit cost, fixed factor and variable factor.
18. Diagrammatically explain the relationship between a. AVC and MC b. TC and MC.
19. Why is AC curve ‘U’ shaped? Discuss the relationship between AC and MC curve. At
what point does the MC curve cut the AC curve?
20. “Why does the Marginal Cost (MC) curve always cut the Average Cost (AC) curve at
its minimum point? Explain with the help of a diagram.”