G.C.E (A/L)
Economics P.Suthaharan BBA (Marketing Special)(Col)
Unit 3
Practice Questions
1. What What is the the total total prod product uct of of an inpu input? t? 2. What What is the the avera average ge produ product ct of of an inpu input? t? 3. What What is the the marg margina inall produc productt of an an input input?? 4. Explain Explain the relationsh relationship ip between the the marginal marginal products products and the total total product product of an input? input? 5. Explain Explain the the concepts concepts of the the short-ru short-run n and and long-run long-run?? 6. What What is the law of dimin diminish ishing ing margi marginal nal produc product? t? 7. When does does a produ production ction functio function n satisfy satisfy constant constant returns returns to scale? scale? 8. When does does a produ production ction functio function n satisfy satisfy increasin increasing g return return to scale? scale? 9. When does does a produ production ction functio function n satisfy satisfy decreasin decreasing g return return to scale? scale? 10. What are the total fixed cost, total variable cost and total cost of a firm? How are they related? 11. What are the average fixed cost, average variable cost and average cost of firm? How are they related? 12. Can there be some fixed cost in the long run? If not, why? why? 13. How does the average fixed cost curve look like? Why does it look so? 14. What do the short-run short-run marginal cost, average variable cost and short-run average average cost curves look like? 15. Why does SMC curve cut the AVC curve curve at the minimum point of the AVC curve? 16. Why is the short-run short-run marginal cost curve ‘U’ shaped? 17. The following table gives the total product schedule of labor. labor. Find the corresponding average
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| P.Suth P.Suthaha aharan ran BBA(Ma BBA(Marke rketin ting g Spl) Spl) (Col) (Col)
ECONOM ECONOMICS ICS
18. product schedules of labour. L 0 1 2 3 4 5
TPL 0 15 35 50 40 48
19. The following gives the average product schedule of labour. Find the total product schedules. It is given that the total product is zero at zero level of labour employment. L 1 2 3 4 5 6
APL 2 3 4 4.25 4 3.5
20. The following tables gives the marginal product schedule of labour. It is also given that total product of labour is zero at zero level of employment. Calculate the total and average product schedules of labour. L 1 2 3 4 5 6
MPL 3 5 7 5 3 1
21. The following table shows the total cost schedule of a firm. What is the total fixed cost schedule of this firm? Calculate TVC, AFC, AVC and SMC schedules of the firm. Q 0 1 2 3 4 5 6
TC 10 30 45 55 70 90 120
22. The following table gives the total cost schedule of a firm. It also given that the average fixed cost at 4 units of output is Rs 5. Find the TVC, TFC, AVC, AFC, SAC and SMC schedules of the firm for corresponding values of output. Q 1 2 3 4 5 6
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| P.Suthaharan BBA(Marketing Spl) (Col)
TC 5065 75 95 130 185
ECONOMICS
23. A firm’s SMC schedule is shown in the following table. The total fixed cost of the firm is Rs100. Find the TVC, TC, AVC and SAC schedules of the firm. Q 0 1 2 3 4 5 6
SMC 500 300 200 300 500 800
24. Let the production function of a firm be Q = 5L ½ K ½ . Find out the maximum possible output that the firm can produce with 100 units of L and 100 units of K. 25. Let the production function of a firm be Q = 2L2K 2. Find out the maximum possible output that the firm can produce with 5 units of L and 2 units of K. What is the maximum possible output that the firm can produce with zero unit of L and 10 units of K? 26. 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 .
27. What will you say about the marginal physical product of a factor when total physical product is falling?
28. Classify the following into fixed cost and variable cost. a. Rent for a shed b. Minimum telephone bill c. Cost of raw materials d. Wages of permanent staff e. Interest on capital f. Payment for transportation of goods g. Telephone charges beyond the minimum f. Daily wages 29. How does total fixed cost change when output changes? 30. How can one obtain total variable cost from a marginal cost curve? 31. What is the general shape of AFC/ MC/ AC curve with an assistance of a graph? 32. Name two factors behind increasing returns to scale in the long run. 33. What is the law of diminishing returns? 34. Define the law of increasing returns. 35. Define the law of constant returns. 36. What is the law of Variable Proportions? 3
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ECONOMICS
37. Define production. 38. Define short period. 39. Define long period. 40. What is explicit cost? 41. What is implicit cost? 42. What is break-even point of a firm? 43. Write the types of costs exist in the short run? 44. Write the types of costs exist in the long run? 45. What is the relationship between TPP and MPPs? 46. Define returns to a variable factor. 47. When total product increases at decreasing rate. What happens to marginal product? 48. In which period does law of variable proportion operate? 49. In which period does law of returns to scale operate? 50. What is meant by fixed factors of production? 51. What is meant by variable factors of production? 52. What are the names of different stages of law of variable proportion? 53. What are the different returns to scale? 54. What is meant by real cost? 55. 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 be lowering the price. 56. Distinguish between explicit cost and implicit cost of producing a good. Give examples. 57. What is meant by scale of production? 58. Explain the relationship between Total Product, Marginal Product and Average Product. 59. From the following table, calculate average variable cost of each given level of output: Output(Units) Marginal Costs(Rs.)
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1 40
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2 30
3 35
4 39
ECONOMICS
60. From the following table, calculate average variable cost of each given level of output: Output(Units) Marginal Costs(Rs.)
1 70
2 60
3 62
4 72
61. Complete the following table Output(Units) 0 1 2 3 4
Total Cost(Rs.) 80 180 270 350 440
Average Variable Cost (Rs.) ….. ….. ….. ….. …..
Marginal Cost (Rs.) ….. ….. ….. ….. …..
62. Calculate total variable cost and Marginal Cost from the following cost schedule of a firm whose total costs are Rs.12. Output(Units) Total Cost(Rs.) 1 20 2 26 3 31 4 38 63. Calculate ‘total variable cost’ and ‘total cost’ from the following cost schedule of a firm whose fixed costs are Rs 10. Output(Units) Marginal Costs(Rs.)
1 6
2 5
3 4
4 6
64. Complete the following table Output(Units) Total Variable Cost(Rs.) 1 10 ….. ….. 3 27 …..
Average Variable Cost (Rs.) …. 8 ….. 10
Marginal Cost (Rs.) ….. 6 ….. 13
65. Complete the following table: Output(Units) Total Variable Cost(Rs.) 1 ….. 2 20 ….. ….. 4 40
Average Variable Cost (Rs.) 12 ….. 10 …..
Marginal Cost (Rs.) ….. ….. 10 …..
66. A firm’s average fixed cost of producing 2 units of a good 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 (units) Total cost(Rs.) 1 23 2 27 3 30 5
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ECONOMICS
67. Complete the following table: Output(Units) Total Variable Cost(Rs.) 1 … 2 18 3 ….. 4 20 5 22
Average Variable Cost (Rs.) 60 ….. ….. 120 …..
Marginal Cost (Rs.) 20 ….. 18 ….. …..
68. Explain with the help of numerical examples, the effect on total output of a good when all the inputs used in production of that good are increased simultaneously and in the same proportion. 69. Giving reasons state whether the following statements are true or false: (i) Average cost falls only when marginal cost falls. (ii) The difference between average total cost and average variable cost is constant. (iii) When total revenue is maximum, marginal revenue is also maximum. 70. Giving reasons state whether the following statements are true or false: (i) When there are diminishing returns to a factor, total product both always decreases. (ii) Total product will increase only when marginal product increases. (iii)When marginal revenue is zero, average revenue will be constant. 71. Giving reasons state whether the following statements are true or false: (i) Increase in Total product always indicates that there are Increasing returns to a factor. (ii) Marginal Revenue is always the price at which the last unit of commodity is sold. (iii)When there are diminishing returns to a factor Marginal and Total product both always fall. 72. Tell equilibrium of producer by marginal revenue and marginal cost method for perfect competitive firm. 73. Show relation in Total Revenue, Marginal Revenue and Average Revenue with the help of diagram in perfect competition. 74. Show relation in TR, MR and AR in imperfect competition. 75. Why is profit maximum at the intersecting point of MR and MC? 76. Describe equilibrium of producer by total revenue or total cost method for perfect competitive firm. 77. Explain why Average Revenue and Marginal Revenue are equal in perfect competition market? 78. Show relation in AR and MR in monopoly. 79. Explain the conditions leading to maximization of profit by a producer. Use total cost and total revenue approach. 80. What is a firm’s profit maximization condition? 81. What is the relationship between total revenue, price and quantity sold? 82. What is the relationship between price and marginal revenue, price and quantity sold? 83. What is the condition of profit maximization for a competitive firm? 84. What is the general profit maximizing condition of a firm? 6
| P.Suthaharan BBA(Marketing Spl) (Col)
ECONOMICS
85. The following table shows the total cost schedule of a competitive firm. It is given that the price of good is Rs 10. Calculate the profit to each output level. Find the profit maximizing level of output. Price(Rs.) TC(Rs.) 0 5 1 15 2 22 3 27 4 31 5 38 6 49 7 63 8 81 9 101 10 123 86. Compute the total revenue, marginal revenue and average revenue schedules in the following table. Market price unit of good is Rs 10. Quantity sold 0 1 2 3 4 5 6
TR
MR
AR
87. The following table shows the total revenue and total cost schedules of a competitive firm. Calculate the profit at each output level. Determine also the market price of the good. Quantity Sold TR(Rs.) TC (Rs.) Profit 0 0 5 1 5 7 2 10 10 3 15 12 4 20 15 5 25 23 6 30 33 7 35 40
88. What are the characteristics of a perfectly competitive market? 89. Why is the total revenue curve of price-taking firm an upwards sloping straight line? Why does the curve pass through the origin? 90. Can there be a positive level of output that a profit maximizing firm produces in a competitive market at which market price is not equal to marginal cost? Give an explanation. 91. Will a profit maximizing firm in a competitive market ever produce a positive level of output in the range where the marginal cost is falling? Give an explanation. 92. Will a profit maximizing firm in a competitive market produce a positive level of output in the short-run if the market price is less than the minimum of AVC? Give an explanation. 7
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ECONOMICS
93. Will a profit maximizing firm in a competitive market produce a positive level of output in the Long-run if the market price is less than the minimum of AC? Give an explanation. 94. Explain the relationship between Marginal Revenue and Average Revenue. Use diagram. 95. Complete the following table when each unit of a commodity can be sold at Rs. 5.
Quantity Sold 1 2 3 4 5 6 7
TR
96. Complete the following table Output(units) Marginal Revenue (Rs.) 1 10 2 8 3 0 4 -2
MR
AR
Total Revenue (Rs.) ….. ….. ….. ….
Average Revenue (Rs.) ….. ….. …. …..
Marginal Revenue (Rs.) ….. ….. ….. ….
Average Revenue (Rs.) ….. ….. …. …..
Revenue (Rs.) ….. ….. ….. ….
Marginal (Rs.) ….. ….. …. …..
Marginal Revenue (Rs.) 15 ….. ….. 3
Total Revenue (Rs.) ….. 26 …. …..
97. Complete the following table: Output(units)
Total Revenue (Rs.)
1 2 3 4
14 24 24 16
98. Complete the following table Output(units) Price (Rs.) 1 10 2 8 3 0 4 -2 99. Complete the following table: Output Average Revenue Revenue(units) (Rs.) 1 ….. 2 ….. 3 11 4 …..
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ECONOMICS
100.
101.
102.
Complete the following table: Price (Rs.)
Output(units)
….. 4 ….. 1
1 ….. 3 …..
104.
Output(units)
Total Revenue (Rs.)
1 2 3 4
….. ….. 12 8
Marginal Revenue (Rs.) ….. 4 ….. ….
Average Revenue (Rs.) 8 ….. 4 2
Marginal Revenue 16 ….. 6 ….
Total (Rs.) ….. 24 ….. 28
Total Revenue (Rs.) 36 ….. 42 …. 40
Marginal Revenue (Rs.) ….. 4 ….. ….. …..
Complete the following table Price (Rs.) ….. 12 ….. 7
Complete the following table Output(units)
Price (Rs.)
4 5 6 7 8
9 ….. ….. 6 …..
From the following schedule find out the level of output at which the producer is in equilibrium. Give reason for your answer: Output(unit) 1 2 3 4 5 6 7
9
Marginal Revenue(Rs.) ….. 2 …. -2
Complete the following table.
Output(units) 1 2 3 4
103.
Total Revenue (Rs.) 6 ….. 6 ….
Price Total(Rs.) 24 24 24 24 24 24 24
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Cost (Rs.) 26 50 72 92 115 139 165
ECONOMICS
105.
From the following table find out the level of Output at which the producer is in equilibrium. Give reasons for your answer. Output(unit) Average revenue (Rs.) Total Cost (Rs.) 1 12 14 2 12 26 3 12 35 4 12 52 5 12 64 6 12 70
106.
Draw AR and MR curves of a firm under (i) pure competition and (ii) monopolistic competition. Give reasons for their shapes. Or Under perfect competition MR = AR, but under monopolistic competition MR < AR. Give Reasons.
107. 108. 109. 110. 111. 112. 113. 114.
Compare the perfect completion and monopoly market structures How does the monopolistic completion differ from the perfect competitive firm Why monopoly firm earns abnormal profit in the short and long run Explain whether a monopoly firm can earn a loss, explain how? How the monopoly could be created and sustained? Explain why the differentiation is a key factor in the monopolistic competition? Explain the concept of price discrimination with the assistance of an example? With the assistance of diagram, describe the abnormal profit, normal profit and loss earned by a perfect competitive firm List the main features of the oligopoly firm? Explain the shutdown point, with a assistance of a diagram? What is meant by revival action of a “ oligopoly firm” ? Why the demand curve in the oligopoly market structure is a kinked demand curve? Explain why a perfect competitive firm can earn only abnormal profit in the short run? Explain equilibrium of producer by the method of Total Revenue or Total Cost and Marginal Cost for imperfect competitive firm.
115. 116. 117. 118. 119. 120.
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| P.Suthaharan BBA(Marketing Spl) (Col)
ECONOMICS
