Define cost. State the relation between marginal cost and averag

Subject

Economics

Class

CBSE Class 12

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Sample Papers

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 Multiple Choice QuestionsShort Answer Type

1.

Give equation of Budget Line.

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 Multiple Choice QuestionsMultiple Choice Questions

2.

When income of the consumer falls, the impact on price-demand curve of an inferior
good is: (choose the correct alternative)

  • Shifts to the right.

  • Shifts of the left.

  • There is upward movement along the curve.

  • There is upward movement along the curve.

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3.

If Marginal Rate of Substitution is constant throughout, the Indifference curve will
be

  • Parallel to the x-axis.

  • Downward sloping concave.

  • Downward sloping convex.

  • Downward sloping convex.

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 Multiple Choice QuestionsShort Answer Type

4.

Giving reason comment on the shape of Production Possibilities curve based on the
following schedule:

Good X (units) Good Y (units)
0 10
1 9
2 7
3 4
4 0
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5.

What will be the impact of recently launched 'Clean India Mission' (Swachh Bharat
Mission) on the Production Possibilities curve of the economy and why?
Or

What will likely be the impact of large scale outflow of foreign capital on Production
Possibilities curve of the economy and why?

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6.

The measure of price elasticity of demand of a normal good carries minus sign while
price elasticity of supply carries plus sign. Explain why?

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7.

There are large numbers of buyers in a perfectly competitive market. Explain the
significance of this feature.

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8.

Explain the effects of 'maximum price ceiling' on the market of a good'? Use diagram.

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9.

A consumer spends Rs. 1000 on a good priced at Rs. 8 per unit. When price rises by 25 per cent, the consumer continues to spend Rs. 1000 on the good. Calculate price elasticity of demand by percentage method.

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10.

Define cost. State the relation between marginal cost and average variable cost.
Or
Define revenue. State the relation between marginal revenue and average revenue.


Cost or cost of production is the price paid to acquire, produce, accomplish, or maintain
anything It refers to the expenditures incurred or payments made by a firm to various
factors of production (such as, land, labour, capital and entrepreneur) and also non-factors of production (such as, raw materials, etc.)
Average Variable Cost (AVC) is defined as the total variable cost per unit of output. We
calculate it as:
AVC = TVC/q
Marginal cost is the change in the total cost that arises when the quantity produced is
incremented by one unit, that is, it is the cost of producing one more unit of a good.
Relationship between AVC and MC:
i. Both AVC and MC are derived from total variable cost (TVC). AVC refers to TVC per unit
of output and MC is the addition to TVC, when one more unit of output is produced.
ii. Both AVC and MC curves are U-shaped due to the Law of Variable Proportions.


1) When AVC is falling, MC falls at a faster rate and stays below AVC curve.
2) When AVC is rising, MC rises at a faster rate and remains above AVC curve.
3) When AVC is at minimum point (y), MC is equal to AVC.
4) MC curve cuts AVC curve at its minimum point.
5) The minimum point of MC curve (x) will always lie left to the minimum point of AVC
curve (y).

Or

Revenue is the amount of money that a company actually receives during a specific period. In other words, revenue refers to the sale proceeds or sales receipts.

Relationship between MR and AR:
The relationship between AR and MR can be studied under two forms of market- under Perfect Competition market and under Imperfect Competition market.
1. Under Perfect Competition market, AR equals MR throughout all output levels. Graphically, MR curve is a straight horizontal line parallel to the x-axis and coincides with the AR curve.


2. Under Imperfect Competition market, as output increases both AR and MR fall. However, AR remains greater than MR at all levels of output. Also, when AR curve becomes zero, then the MR curve is negative. Graphically, both AR curve and MR curve are downward sloping but the AR curve remains above the MR curve.

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