Production and Costs VBQs Class 12 Economics

VBQs for Class 12

VBQs Production and Costs Class 12 Economics with solutions has been provided below for standard students. We have provided chapter wise VBQ for Class 12 Economics with solutions. The following Production and Costs Class 12 Economics value based questions with answers will come in your exams. Students should understand the concepts and learn the solved cased based VBQs provided below. This will help you to get better marks in class 12 examinations.

Production and Costs VBQs Class 12 Economics

Very Short Answer Type Questions

Question. Define production function.
Answer : Diminishing return to a factor

Question. What will be the behavior of total product when marginal product of variable input is falling but is positive?
Answer : Total product increases at diminishing rate.

Question. Define average production.
Answer :
AP is a per unit output of a variable factor.

Question. By which behaviour of marginal product will total product be maximum
Answer :
When marginal product of a factor is zero, then total product will be maximum.

Question. What do you mean by cost?
Answer :
Cost is the sum of explicit and implicit cost.

Question.  Which cost curve is parallel to ox-axis? Why?
Answer :
Total fixed cost because TFC remain constant at all level of output.

Question. Define marginal cost.
Answer :
Marginal cost is the net addition to total cost when one additional unit of output is produced.

Question. Define Revenue.
Answer :
Revenue is the amount received from sale of output.

Question.  What will be the behaviour of Average revenue when total revenue increases at constant rate?
Answer :
Average revenue remains constant.

Question.  What will be the behaviour of total revenue when marginal revenue is zero?
Answer :
Total revenue will be maximum.

Question.  What do you mean by producer’s equilibrium?
Answer :
Producer’s equilibrium is a situation where he gets maximum profit.

Question.  Define supply.
Answer :
Supply refers to the amount of the commodity that a firm or seller is willing to offer for sale in a given period of time at various prices.

Question.  Define Market Supply
Answer :
It refers the sum of total quantity supplied by all the firms in a market.

Question. What is meant by change in supply?
Answer :
Change in supply refers to increase or decrease in supply of a commodity due to change in factors other than price like technology, price of inputs, Goal of producer, Number of firms etc.

Question. What effect does an increase is tax rates have on supply of a commodity?
Answer :
As a result of increase in tax rates production cost increase, so the profit margin of producer will fall and producer will decrease the supply.

Question. What is meant by leftward shift of supply curve?
Answer :
Due to change in other factors the supply of a commodity falls at same price than supply curve shifted to leftward.

Question. Why does a supply curve have a positive slope?
Answer :
Because of positive relation between price and supply.

Question. What is the price elasticity of supply, if supply curve is parallel to y-axis.
Answer :
Perfectly elastic.

Question. When does the producer increase the supply of a good at given price, give two reasons.
Answer :
Due to change in other factor like improvement in technology, decrease in price of inputs.

Question. If the price of a commodity falls by 10% and, consequently, the quantity supplied decreases by 20%. What will be its price elasticity of supply?
Answer :

Production and Costs VBQs Class 12 Economics

Short Answer Type Questions

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.

Machine Unit of labourTotal physical product
1 110
1 224
1 342

Question. Draw average cost, average variable cost and marginal cost curves on a single diagram and explain their relations.
Answer :

Production and Costs VBQs Class 12 Economics

Relation of AC, AVC and MC
1. MC interects to AC and AVC at their minimum level
2. AC and AVC decreases before the interection by MC, but remain greater than MC.
3. AC and AVC starts to increase after the itersection by MC, and becomes less than MC.
4. As output increases, AC and AVC tends to be closer but the difference between AC and AVC can naver be zero.

Question. Explain the relation between average revenue and marginal revenue when a firm can sell an additional unit or a good by lowering the price.
Answer :
1. AR and MR both decreases.
2. MR decrease at the rate of twice than AR.
3. MR become zero and negative but AR can never be zero.

Question. Explain how does change in price of input affect the supply of a good.
Answer :
A. Increase in price of input : increase in price of input is cause of a decrease in the supply of a good because the production cost of a good will increase due to increase in price of input. It will reduced the profit. So producer will decrease the supply of the good.
B. Decrease in price of Input : Decrease in price of input is a cause of increase in supply because when the price of input decrease the production cost of a good also also decreases. Decrease in cost increases the profit margin. It motivate to producer to increase the supply of the good.

Question. Explain how technological advancement influence the supply of a given product.
Answer :
Technological advancement brings a positive impact in the supply of a given product. It reduces per unit cost and increase the productivity of given factors of production. Due to these reasons production of given product becomes more profitable.

Question. What is producer’s equilibrium? Explain the conditions of produce’s equilibrium through the ‘marginal cast and marginal revenue’ approach. use diagram/schedule.
Answer :
Producer’s equilibrium refer’s the stage under which with the help of given factor’s of production producer attain that level of production of which he is getting maximum profit. The conditions of producer’s equilibrium through the marginal cost and marginal revenue approach are as follows.
1. Marginal cost should be equal to marginal revenue.
2. With the increase in output after equilibrium marginal cost should be greater than marginal revenue.

Production and Costs VBQs Class 12 Economics
Production and Costs VBQs Class 12 Economics

Explanation of conditions :–
1. So long as MC is less than MR, it is profitable for the producer to go on producing more because it adds to its profits. He stops producing more when MC becomes equal to MR.
2. When MC is greater than MR after equilibrium if means the profit will decline if producer will produce more units of the good. Important instruction for giving the answer of the above question
Use only one schedule/diagram given as above for the explaination.
Do not use diagram for the explaination of this question if it is instructed to use schedule and do not use schedule if the explaination of this question is asked with the help of diagram.

Question. What are the factors which give rise to increasing returns to variable factors?
Answer :

1. Fuller utilization of the fixed factors- Generally fixed factors are indivisible and underutilized. With greater application of variable factor these factors are better utilized its MPP tends to rise.
2. Increased efficiency of variable factor- Application of specialization and division of labour among the units of variable factors leads to greater efficiency and increase in MPP.

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 U-shaped.

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. 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)