CBSE Class 12 Economics Producers Behaviour And Supply To Economics Worksheet

Question. Function showing relationship between input and output is known as ...... .
a) consumption function
b) investment function
c) production function
d) cost function

Answer. C

Question. If the Average Product (AP) of a labour is 30 units of outputs, then find total product of 2 labours.
a) 10 units of output
b) 15 units of output
c) 30 units of output
d) 60 units of output

Answer. D

Question. Average Product (AP) is at its maximum when
a) MP > AP
b) MP < AP
c) MP = AP
d) MP becomes negative

Answer. C

Question. ...... is the variable factor of production.
a) Land
b) Labour
c) Capital
d) Factory

Answer. B

Question. Increasing returns is applicable because of ...... .
a) increased efficiency of variable factor
b) fuller utilisation of fixed factor
c) indivisibility of factors
d) Both (a) and (b)

Answer. D

Question. Under the relationship between TP, MP and AP curves, MP becomes negative when
a) TP increases
b) TP decreases
c) TP remain constant
d) TP becomes zero

Answer. B

Question. If the total product of 5 labours is 50 units of output and total product of 6 labours is 66 units of output, find Average Product (AP) of 6th unit oflabour.
a) 10 units of output
b) 11 units of output
c) 50 units of output
d) 16 units of output

Answer. B

Question. When total product falls, then ...... .
a) average product is equal to zero
b) marginal product is equal to zero
c) marginal product is negative
d) average product continues to rise

Answer. C

Question. Which of the following curve is not ‘U’ shaped?
a) AFC
b) AVC
c) MC
d) AC

Answer. A

Question. What is ‘production’ in economics?
a) Creation/Addition to the value of output
b) Production of foodgrains
c) Creation of services
d) Manufacturing of goods

Answer. A

Question. In the first stage of law of variable proportions, total product increases at an ...... .
a) decreasing rate
b) increasing rate
c) constant rate
d) Both (a) and (b)

Answer. B

Question. In which time period, all factors of production become variable and factors of production change with the change in level of production?
a) Long period
b) Market period
c) Short period
d) All of these

Answer. A

Question. Payment made to outsiders for their goods and services are called ...... .
a) opportunity cost
b) real cost
c) explicit cost
d) implicit cost

Answer. C

Question. Law of variable proportion is valid when ....... .
a) atleast one input is fixed and all other inputs are kept variable
b) all factors are kept constant
c) all inputs are varied in the same proportion
d) None of the above

Answer. A

Question. Cost function explain the relationship between
a) income and expenditure
b) input and output
c) fixed cost and variable cost
d) output and cost of production

Answer. D

Question. Which of the stages is relevant for a firm which aims at maximum economic efficiency in the law of variable proportion?
a) Stage I
b) Stage II
c) Stage III
d) Stage IV

Answer. B

Question. Total revenue generated from sale of output of a firm can be calculated as
a) TR = P × Q
b) TR = AR × Q
c) TR = ∑MR
d) All of these

Answer. D

Question. At the point of inf lexion, the marginal product is ...... .
a) increasing
b) decreasing
c) maximum
d) negative

Answer. C

Question. When average cost curve is rising, then marginal cost ...... .
a) must be decreasing
b) must be constant
c) must be rising
d) Any of these

Answer. C

Question. Average Revenue is equal to ..... .
a) Total Revenue/ Quantity Sold
b) Average Revenue/2
c) Total Revenue/100
d) Average Quantity/Quantity Sold × 2

Answer. A

Question. Area under MC curve is ...... .
a) total cost
b) total fixed cost
c) total variable cost
d) None of these

Answer. C

Question. Short-run supply curve of the firm is ..... .
a) rising portion of MC curve
b) rising portion of MC curve which lies above AVC curve
c) rising portion of MC curve which lies above AFC curve
d) entire MC curve

Answer. B

Question. ...... are not zero at zero level of output.
a) Fixed costs
b) Variable costs
c) Marginal costs
d) Average variable costs

Answer. A

Question. When the firm is producing 3 tonnes of sugar, it receives total revenue of Rs 24. Raising production to 4 tonnes, increases total revenue to Rs 28. Thus, marginal revenue is ...... .
a) Rs 4
b) Rs 8
c) Rs 28
d) Rs 52

Answer. A

Question. As output increases, average fixed cost ...... .
a) remains constant
b) starts falling
c) starts rising
d) None of these

Answer. B

Question. Under imperfect competition, slope of AR is generally ...... of slope of MR.
a) half
b) twice
c) equal
d) one-third

Answer. B

Question. A perfectly competitive firm attains equilibrium at a point where ...... .
a) MR is equal to MC and MC curve intersects MR curve from below
b) MC is equal to MR
c) MC is falling but is equal to AC
d) Both (a) and (b)

Answer. A

Question. If AR is Rs 40 per unit from the sale of 3 goods and it is Rs 30 per unit from the sale of 4 goods. Find the marginal revenue of 4th unit of goods.
a) Rs 10
b) Rs 30
c) Rs 40
d) 0

Answer. D

Question. In the process of production, fixed factors and variable factors are combined in a particular ratio, which gives equilibrium output. What is this ratio called?
a) Factor output ratio
b) Capital output ratio
c) Ideal factor ratio
d) None of these

Answer. C

Question. When MC is greater than MR after producer equilibrium, it means
a) profit of firm
b) producing more will lead to decline in profit
c) no profit no loss
d) firm enjoys economic efficiency

Answer. B

Question. Marginal Revenue (MR) curve is a straight horizontal line in ....... .
a) perfectly competitive market
b) monopolistic competitive market
c) oligopoly market
d) monopoly market

Answer. A

Question. Which of the following statement is true?
a) For a monopoly firm, average revenue can be zero.
b) For a monopoly firm, marginal revenue can be zero or negative.
c) For a monopoly firm, marginal revenue and average revenue are identical.
d) For a monopoly firm, marginal revenue and average revenue are positively sloped.

Answer. B

Question. In monopoly and monopolistic competitions, AR and MR curve are downward sloping because the firms can sell more by
a) increasing the price
b) lowering the price
c) keep in price constant
d) All of the above

Answer. B

Question. When marginal revenue is zero, ...... .
a) total revenue is also zero
b) total revenue is the maximum
c) total revenue is the minimum
d) total revenue starts increasing sharply

Answer. B

Question. In the long-run, a firm in a perfectly competitive market earns ...... .
a) normal profit
b) abnormal profit
c) atleast 15% profit on capital employed
d) None of the above

Answer. A

Question. When total product is 100 units and units of variable factor are 5, average product will be
a) 20
b) 95
c) 105
d) 500

Answer. A

Question. The firm in perfect competition maximises profit by producing at the rate of output where price equals to ...... .
a) revenue cost
b) marginal
c) revenue
d) marginal cost

Answer. D

Question. Average revenue of a monopolist firm is ....... .
a) always more than the marginal revenue
b) always less than the marginal revenue
c) equal to marginal revenue
d) None of the above

Answer. A

Question. ....... is a person who purchase factors of production (inputs) to convert them into outputs.
a) Buyers
b) Consumer
c) Producer
d) Government

Answer. C

Question. A firm break-even point occurs when ...... . At this point, firm is earning zero economic profit or normal profits. The market price passes through the minimum point of AC curve.
a) AR = AC
b) TR = TC
c) AR = AVC
d) Both (a) and (b)

Answer. D

Question. Which of the following is true about shape of marginal product and average product curves?
a) Average product is ‘U’ shaped and marginal product is inverted ‘U’ shaped
b) Marginal product is ‘U’ shaped and average product is inverted ‘U’ shaped
c) Both average product and marginal product are ‘U’ shaped
d) Both average product and marginal product are inverted ‘U’ shaped

Answer. D

Question. In perfect competition,
a) AR = MR
b) AR = P
c) TR is positively sloped straight line from origin
d) All of the above

Answer. D

Question. A seller can sell 5 smart phones at a price of Rs 12,000 each. If he sell 6th unit of mobile, his marginal revenue will be 10,500. The Price/AR of the 6th unit will be
a) Rs 11,000
b) Rs 12,000
c) Rs 11,700
d) Rs 11,750

Answer. D

Question. Draw average cost, average variable cost and average fixed cost curves on a single diagram and explain their relation.

Answer.

1. AC is the vertical summation of AVC and AFC

2. The difference between AC and AVC falls as output increases but the difference of AC and AFC increases.

3. As output increases AC and AVC tends to be closer but their curves do not interect each other because AFC always remains more than zero.

Revenue Concepts
 

What is Revenue?
Revenue represents the monetary receipts that a firm earns from selling its goods and services in the market.

Key Concepts of Revenue

• Total Revenue (TR): Calculated as the product of price per unit and total quantity sold: \[ \text{TR} = \text{Price} \times \text{Quantity} \]
• Average Revenue (AR): The revenue earned per unit of output sold, which is equal to price: \[ \text{AR} = \frac{\text{TR}}{\text{Quantity}} \]
• Marginal Revenue (MR): The net change in total revenue resulting from selling one additional unit of output.
• Market Relationships: The relationship between Total Revenue and Marginal Revenue varies between perfectly competitive and non-competitive market structures.

Question 1. Name the payment, which is received from the sale of goods.
Answer: The money received from selling goods is called revenue.
In simple words: The cash a business gets when it sells its products is known as revenue.
Exam Tip: Do not confuse revenue with profit; revenue is total sales receipts, while profit is revenue minus costs.

Question 2. What is revenue?
Answer: Revenue refers to the total amount of money that a business receives from selling its output to customers.
In simple words: Revenue is the total money a company brings in from its sales.
Exam Tip: Be sure to mention that it is the overall receipt before any deductions or expenses are subtracted.

Question 3. Let Q be the quantity of the good produced and therefore sold, by the firm at price P. How much a firm will get revenue?
Answer: The firm will earn a total revenue calculated as the product of the price (\( P \)) and the quantity sold (\( Q \)). Mathematically, it is written as: \[ \text{TR} = P \times Q \]
In simple words: If a firm sells a quantity \( Q \) at a price \( P \), its total revenue is simply \( P \) multiplied by \( Q \).
Exam Tip: Clearly state that this represents the formula for Total Revenue (TR).

Question 4. How will a firm optimize its profit?
Answer: A firm optimizes its profit by producing at the level of output where Marginal Revenue equals Marginal Cost (\( \text{MR} = \text{MC} \)), and where the Marginal Cost curve cuts the Marginal Revenue curve from below.
In simple words: A company makes the most profit when the money it gets from selling one more item is exactly equal to what it costs to make that item, and costs are rising.
Exam Tip: List both conditions of producer's equilibrium (equality and the slope condition) to get full marks.

Question 5. What is the objective of a firm?
Answer: The primary objective of a commercial firm is profit maximization, which means achieving the highest possible difference between its total revenue and total costs.
In simple words: The main goal of a business is to make as much profit as possible.
Exam Tip: State "profit maximization" as the key term since it is the standard economic assumption for firm behavior.

Question 6. Name the revenue, which is per unit of output sold.
Answer: Average Revenue is the term used for the revenue earned per unit of output sold.
In simple words: Average revenue is the amount of money a firm gets for each individual item it sells.
Exam Tip: Remember that Average Revenue is mathematically identical to the price of the product.

Question 7. How does AR differ from the MR?
Answer: Average Revenue (AR) is the revenue earned per unit of output sold, whereas Marginal Revenue (MR) is the additional revenue generated by selling one extra unit of output.
In simple words: Average revenue is the average price of all items sold, while marginal revenue is the specific money made from selling just the very last item.
Exam Tip: Highlight that in a perfectly competitive market, AR and MR are equal, but in a monopoly or monopolistic competition, AR is greater than MR.

Question 8. Define marginal revenue.
Answer: Marginal Revenue is defined as the net increase in total revenue that results from selling one additional unit of a commodity.
In simple words: Marginal revenue is the extra money a business earns when it sells one more unit.
Exam Tip: Express this definition using the formula: \( \text{MR}_n = \text{TR}_n - \text{TR}_{n-1} \).

Question 9. Why is AR always equal to MR for a competitive firm?
Answer: For a perfectly competitive firm, the market price is constant because the firm is a price taker. Since every unit is sold at the exact same price, the revenue from selling an additional unit (MR) is always equal to the average price of all units sold (AR).
In simple words: In a competitive market, a business must sell everything at the same set price. Because the price never changes, the money from selling one more item is always equal to the average price.
Exam Tip: State that a flat, constant price is the key reason why \( \text{AR} = \text{MR} = \text{Price} \).

Question 10. Why MR and AR curves parallel to the X-axis in the competitive market?
Answer: In a perfectly competitive market, a firm can sell any quantity of output at the prevailing market price. Since price remains constant at all levels of output, both AR and MR are constant and equal to the price, resulting in horizontal curves parallel to the X-axis.
In simple words: Because the price of the product does not change no matter how much you sell, the lines for average and marginal revenue stay perfectly flat and horizontal.
Exam Tip: Use the term "perfectly elastic demand" to describe the horizontal AR and MR curves under perfect competition.

Question 11. What is the relationship between Price and MR in the competitive market?
Answer: In a competitive market, Price is always equal to Marginal Revenue (\( P = \text{MR} \)) because the price is constant and does not fall as output increases.
In simple words: In a competitive market, the price of a product is exactly the same as the marginal revenue.
Exam Tip: Remember that \( \text{Price} = \text{AR} = \text{MR} \) is a unique characteristic of perfect competition.

Question 12. What is Total Revenue?
Answer: Total Revenue is the entire sum of money received by a firm from selling a specific quantity of its product.
In simple words: Total revenue is all the money a business makes from its sales before paying any expenses.
Exam Tip: Represent this as \( \text{TR} = P \times Q \) to make your answer complete.

Question 13. Why is TR curve facing a competitive firm a straight line passing through the origin?
Answer: The Total Revenue curve for a competitive firm is a straight, upward-sloping line from the origin because the price is constant. This means that total revenue increases at a constant rate as output increases, and is zero when output is zero.
In simple words: Since the price is always the same, every new sale adds the exact same amount to total revenue. When you sell nothing, you earn nothing, so the line starts at zero and goes straight up.
Exam Tip: Mention that the constant slope of the TR curve is equal to the constant price of the commodity.

Question 14. When TR falls what happens to MR in the non-competitive market?
Answer: In a non-competitive market, when Total Revenue begins to fall, Marginal Revenue becomes negative.
In simple words: If total sales revenue goes down when you sell more, it means the extra revenue from the last item sold is actually negative.
Exam Tip: Remember that when TR is at its maximum, MR is zero, and when TR falls, MR is less than zero.

Question 15. Explain the relationship between TR and MR in the non-competitive market. Use diagram.
Answer: In a non-competitive market (such as monopoly or monopolistic competition), the relationships between TR and MR are:
1. As long as MR is positive, TR increases at a diminishing rate.
2. When MR becomes zero, TR reaches its peak (maximum value).
3. When MR becomes negative, TR starts to decline.
In simple words: As you sell more by lowering prices, your total revenue increases at first. When the extra revenue (marginal revenue) hits zero, total revenue is at its highest point. After that, marginal revenue becomes negative and total revenue starts to drop.
Exam Tip: Drawing the aligned two-panel diagram showing the peak of TR directly above the zero-point of MR is the best way to earn full marks on this question.

Question 16. What is the effect of increasing TR at a decreasing rate upon the marginal revenue?
Answer: When Total Revenue increases at a decreasing rate, Marginal Revenue is positive but continuously declining.
In simple words: If total sales keep going up but by smaller and smaller jumps each time, it means the extra money from each new sale is positive but getting smaller.
Exam Tip: Use this to show that the slope of the TR curve is represented by MR, which means a flattening TR curve corresponds to a falling MR.

Question 17. What is the shape of MR curve in Non-competitive market?
Answer: In a non-competitive market, the Marginal Revenue curve is a downward-sloping straight line or curve that lies below the Average Revenue curve.
In simple words: The marginal revenue curve slopes downward from left to right, meaning it gets lower as more units are sold.
Exam Tip: Mention that because price must be lowered to sell more, the MR curve is always steeper and lower than the AR curve.

Question 18. Complete the following table: -
Answer: Total Revenue (TR) is calculated using the formula: \[ \text{TR} = \text{Price} \times \text{Output} \]

Using this relation, we can calculate the missing fields:

• At Price Rs. 10: Output = \( 100 / 10 = 10 \)
• At Price Rs. 11: TR = \( 11 \times 9 = 99 \)
• At Price Rs. 12: Output = \( 96 / 12 = 8 \)
• At Price Rs. 13: TR = \( 13 \times 7 = 91 \)
• At Price Rs. 14: Output = \( 84 / 14 = 6 \)
• At Price Rs. 15: TR = \( 15 \times 5 = 75 \)
• At Price Rs. 16: Output = \( 64 / 16 = 4 \)

In simple words: We can find the missing numbers because Total Revenue is always equal to Price multiplied by the quantity of Output.
Exam Tip: For horizontal tables, double check each column using the formula \( \text{TR} = P \times Q \) to make sure everything multiplies correctly.

Producer's Equilibrium Concepts

A producer achieves equilibrium at the level of output that yields maximum economic profit. There are two primary methods to determine this point:

• TR and TC Approach: Equilibrium is reached where the positive difference between Total Revenue (TR) and Total Cost (TC) is maximized, or where both curves have the same slope.
• MR and MC Approach: Equilibrium occurs where Marginal Revenue (MR) equals Marginal Cost (MC), and Marginal Cost is rising (cuts MR from below).

Question 1. What is producer’s equilibrium?
Answer: Producer's equilibrium is a state of balance where a producer outputs a quantity of goods that maximizes their net economic profit.
In simple words: Producer's equilibrium is the sweet spot of production where a business makes the absolute most profit.
Exam Tip: Be sure to use the term "profit maximization" to define the equilibrium state.

Question 2. When a producer is said to be in equilibrium situation?
Answer: A producer is in equilibrium when they have no incentive to increase or decrease production, which happens at the specific output level where profits are maximized.
In simple words: A producer is in equilibrium when changing how much they produce would only lower their profits, so they stay right where they are.
Exam Tip: Emphasize that at equilibrium, the firm's profits are at their absolute peak.

Question 3. Express the difference between TR and TC?
Answer: The difference between Total Revenue and Total Cost represents the total profit (or loss) of the firm. Mathematically, it is expressed as: \[ \text{Profit } (\pi) = \text{TR} - \text{TC} \]
In simple words: Subtracting total cost from total revenue shows how much profit a business has earned.
Exam Tip: Use the Greek letter pi (\( \pi \)) to represent profit in your equations to impress the examiner.

Question 4. What does profit mean?
Answer: Profit is the positive financial gain remaining after all production costs, both explicit and implicit, are subtracted from the total revenue earned by a firm.
In simple words: Profit is the money a company keeps after paying off all its expenses from the money it made selling goods.
Exam Tip: Clearly define profit as \( \text{TR} - \text{TC} \) to ensure a precise economic definition.

Question 5. Where TR=TC or AR=AC express the situation of Profits and Losses. Use suitable diagram.
Answer: When Total Revenue equals Total Cost (\( \text{TR} = \text{TC} \)) or Average Revenue equals Average Cost (\( \text{AR} = \text{AC} \)), the firm is earning normal profits. This point is known as the Break-Even Point, where there is neither an economic profit nor an economic loss.
In simple words: When a firm's total money coming in equals its total costs, it is breaking even. It is not losing money, but it is not making extra profits either.
Exam Tip: Explain that at the break-even point, a firm covers all its opportunity costs, earning what economists call "normal profit".

Question 6. What are Normal profit and Abnormal profit?
Answer:

• Normal Profit: This is the minimum level of profit required to keep a firm operating in its current industry. It occurs when total revenue equals total cost (\( \text{TR} = \text{TC} \)), covering both explicit and implicit costs.
• Abnormal Profit: This refers to any economic profit earned in excess of normal profits, occurring when total revenue is greater than total cost (\( \text{TR} > \text{TC} \)).

In simple words: Normal profit is just enough money to keep the business running and happy. Abnormal profit is the extra, bonus profit made above that minimum level.
Exam Tip: Clarify that in economics, normal profit is considered a part of total cost because it is the opportunity cost of the entrepreneur's effort.

Question 7. What is Break Even Point?
Answer: The Break-Even Point is the level of production where a firm's total revenue equals its total cost, resulting in zero economic profit and zero economic loss.
In simple words: The break-even point is when a company makes exactly as much money as it spends, so it has no loss and no extra profit.
Exam Tip: Use the mathematical expression \( \text{TR} = \text{TC} \) or \( \text{AR} = \text{AC} \) to define this point.

Question 8. Explain the conditions of producer’s equilibrium in case of TR &TC approach and MR &MC approach with the help of diagram.
Answer: 1. Total Revenue (TR) & Total Cost (TC) Approach:
Equilibrium is achieved where the vertical distance between the TR and TC curves is maximized (with TR > TC). At this point, the slope of TR equals the slope of TC.

2. Marginal Revenue (MR) & Marginal Cost (MC) Approach:
A producer is in equilibrium when two conditions are met:

• Marginal Revenue equals Marginal Cost (\( \text{MR} = \text{MC} \)).
• Marginal Cost must cut Marginal Revenue from below (MC must be rising).

In simple words: To find the best amount to produce, a firm can either look for where the gap between total sales and total costs is biggest, or where the cost to make one more item is exactly equal to the revenue from selling it, with costs going up.
Exam Tip: In the MR-MC diagram, point A (where MC cuts MR while falling) is not an equilibrium because the firm can increase profits by producing more. Point E is the true equilibrium.

Question 9. Find out the maximum profit position of a producer by comparing MC &MR on the basis of the following data:-
Answer: To find the maximum profit position (equilibrium), we check the two conditions of the MR-MC approach:
1. \( \text{MR} = \text{MC} \)
2. After this level of output, MC must be greater than MR (\( \text{MC} > \text{MR} \)).

Let's analyze the data:

• At 4 units of output, \( \text{MR} = \text{MC} = \text{Rs. } 7 \). This satisfies the first condition.
• At 5 units of output, \( \text{MC} \) (Rs. 8) is greater than \( \text{MR} \) (Rs. 6). This satisfies the second condition.

Thus, the producer's maximum profit position is at 4 units of output.

In simple words: At 4 units of output, the revenue from selling the last unit (Rs. 7) is exactly equal to the cost of making it (Rs. 7). If the firm produces a 5th unit, it would lose Rs. 2 on that unit, so 4 units is the maximum profit position.
Exam Tip: Always check both conditions of the MR-MC approach when solving numerical tables; do not just stop at \( \text{MR} = \text{MC} \).

Question 10. When does a producer earn maximum profit?
Answer: A producer earns maximum profit at the output level where two conditions are simultaneously satisfied: first, Marginal Revenue equals Marginal Cost (\( \text{MR} = \text{MC} \)); and second, Marginal Cost must be greater than Marginal Revenue for any subsequent unit of output.
In simple words: A producer makes the highest profit when the money made from the last item sold equals what it cost to build it, and making any more items would cost more than they sell for.
Exam Tip: State both conditions clearly in list form to make it easy for the examiner to award full marks.

Question 11. What do you mean by profit maximization of a producer?
Answer: Profit maximization is the process by which a firm determines the price and output level that returns the greatest possible net profit, achieved when the difference between total revenue and total cost is at its widest point.
In simple words: Profit maximization is the goal and action of finding the exact level of production that brings in the most net cash for the business owner.
Exam Tip: Note that profit maximization is the core behavioral assumption for firms in classical microeconomic theory.