NCERT Class 12 Economics Chapter 3 Question Answers & Notes Production and costs Easy PDF

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NCERT Class 12 Economics Chapter 3 Question Answers & Notes Production and costs Easy PDF, Economics Class 12th Chapter 3 Notes | Economics Class 12 Chapter 3 Questions And Answer Easy PDF


Production and costs


Production function studies the functional relationship between physical inputs and physical output. It takes into account only physical inputs and outputs. Not their market value.

Total Product ) — The total quantity of goods and services produced in a given time is called total production.

Marginal Production)—The change in total output by using one additional unit of a variable factor is called marginal output.

(Here ATP = change in total output AL change in units of variable factor employed)

The average product is produced per unit of the variable factor.

called average output. AP = TP/L

Returns to a Factor ——— This is the concept in which the behaviour of production is studied as a result of a change in only one factor of production keeping other factors constant.

Returns to Scale—This is an assumption in which the behaviour of production is studied by changes in all factors in the same proportion.

Law of Variable Proportions – The law of variable proportions states that as more and more units of the variable factor are used along with the fixed factor, a situation must come when the excess of the variable factor The contribution i.e. the marginal product of the variable factor starts decreasing.

Increasing Returns to Scale — Increasing returns to scale refers to the situation of production in which if all the factors are increased in a certain proportion, the output increases in a greater proportion. These apply because of internal economies of scale.

Constant / Equal Returns to Scale (Constant Returns to Scale) reveal the situation of production in which if all the factors are increased in a fixed proportion, the output will increase in the same proportion.

Diminishing Returns to Scale – Diminishing returns to scale refers to the situation in which if all the factors are increased in a fixed proportion, the output will increase in a smaller proportion than that.


NCERT Class 12 Economics Chapter 3 Question Answers


Class12th 
Chapter Nameproduction and costs
Chapter numberChapter 3
Part A
BoardCBSE
Book NCERT
SubjectEconomics
Medium English
Study MaterialsQuestion Answers & Notes
Download PDFNcert class 12 economics chapter 3 pdf
NCERT Class 12 Economics Chapter 3 Question Answers

VERY SHORT ANSWER TYPE QUESTIONS


1. What is the general shape of marginal cost?

Ans. Marginal Cost One is generally like the English letter U.

2. What is meant by production?

Ans. There are two types of production techniques-

(i) Labor-intensive production techniques and

(ii) Capital-intensive production techniques.

3, Write the meaning of the actual cost.

Ans. The sacrifices made by the owners of the factor inputs in supplying them, the sufferings and pains they bear are called real costs.

4. State the meaning of implicit cost with examples.

Ans. The cost of using the firm’s own resources in the production process is called implicit cost. Example- Rent of private land, interest on private capital etc.

5. Define private cost. 

Ans. The costs incurred by the firm in the production process are called private costs.

6. What happens to the marginal product when a total physical product is increasing?

Ans. The marginal physical product is positive.

7. Write the definition of return to a factor.

Ans. The behavior of change in output on changing the units of a factor keeping other factors of production constant is called return of the factor.

8. Write the definition of returns to scale.

Ans. The behavior of change in the quantity of output as a result of proportionate change in two or more factors of production in the long run is called returns to scale.

9. Write the meaning of internal savings.

Ans. The expenses that are received by the firm on increasing the size of production are called internal savings.

10. What is marginal product?

Ans. Marginal product is the income change in total product from the use of one additional unit of the variable factor while the other factors remain constant.

11. Define production function.

Ans. The production function expresses the relationship between factor inputs and output under a given technology.

12. State the meaning of the term ‘Average Product’.

Ans. It is obtained by dividing total product by the number of variable units.

13. What is the total product?

Ans. The quantity of goods produced by a firm at a time using fixed and variable factors is called total product.

14, What are the returns to scale?

Ans. When increasing output, all factors are considered variable and are increased in the same proportion.

15. What are internal savings?

Ans. The benefits that a firm receives as a result of its operation.

16. Why cannot a firm operate in the third stage of factor returns?

Ans. Because marginal product is negative, which no firm can afford economically.

17. What is the law of variable proportions?

Ans. It expresses the relationship between inputs and output when the factor ratios of fixed and variable inputs change.

18. What happens to MP when TP is falling?

Ans. It is negative.

19. How is total physical product determined from marginal physical product table?

Ans. Total physical product is obtained by adding marginal physical product.

20. What is the general shape of the MPP curve? 

Ans. The general shape of the MPP curve is that of an inverted U.

21. What is meant by division of labour?

Ans. Assigning work to laborers on the basis of their ability and experience is called division of labor.

22. What is the discount on over purchase?

Ans. For purchases above a certain quantity, some reduction in prices may be made by the manufacturer. This is called deduction.

23. What is the general shape of the APP curve?

Ans. The general shape of the APP curve is also like the inverted form of the English letter ‘U’.

24. State the meaning of fixed cost.

Ans. The amount spent on fixed assets is called fixed cost. This cost remains constant whether the output is high or low or zero.

25. What is marginal cost?

Ans. The increase in total cost by producing one additional unit is called marginal cost.

26. What are variable costs?

Ans. Expenses incurred on variable inputs are variable costs.

27. Which cost is zero at zero output level?

Ans. variable cost.

28. What does the difference between ATC and AVC represent?

Ans. AFC,

29. What is total cost at zero output level?

Ans. This is the total fixed cost.

30. Why does the difference between ATC and AVC decrease as output increases? 

Ans. The difference is the AFC, and AFC decreases as output increases.


SHORT ANSWER TYPE QUESTIONS


1. Distinguish between ‘Returns to a Factor’ and ‘Returns to Scale’.

Years.

factor return

returns to scale

(i) Study of returns to a factor

(1) Returns to scale are studied from long run short run point of view.

(ii) Factor returns apply when only one factor is variable and the rest of the factors remain constant. done from the point of view of (ii) Returns to scale apply when all the factors of production are variable.

2. Explain the difference between diminishing returns to a factor and diminishing returns to scale.

Ans. With the increase in the quantity of the factor under the diminishing returns of the factor, the total production increases at a decreasing rate, that is, the marginal production starts decreasing. Conversely, under diminishing returns to scale, total output increases by less than the proportion by which all factors are increased. For example, if all the factors are doubled, then the total production will be less than double.

4. How does total physical production change when marginal physical production changes?

Ans. Marginal physical product is the increase in total physical product by applying one additional unit of variable factor (labour). Thus they are interrelated. As long as marginal physical product is positive, total physical product increases. When the marginal physical product is negative, the total physical product starts decreasing.

Marginal physical product remains positive in the first stage of production, starts declining in the second stage and becomes negative in the third stage. As a result, the total physical production decreases.

5. A firm produces 20 units. At this level of output, ATC and AVC are Rs.40 respectively. and 37 Rs. Is. Calculate the total fixed cost of the firm.

Ans. TFC = ( ATC x20) – (AVCX20)

                = (40×20) (37x 20) 

                =800-740

                =60

6. State the relationship between average product and marginal product of total production.

Ans. Relationship between total product, average product and marginal product –

(i) Total product, average product and marginal product all increase up to a certain level of employment. Marginal product is greater than average product.

(ii) Average product is maximum when both average product and marginal product are there.

(iii) After this, on increasing the employment of units of variable factor, total product increases with low tax rate and both marginal product and average product decrease.

(iv) Total product is maximum when marginal product becomes zero, but average product is never zero.

(v) When marginal product becomes negative, total product starts decreasing.

7. Write the reason for diminishing returns to a factor.

Ans. The reasons for the diminishing returns to a factor are as follows-

(i) On increasing the employment of more units of use-variable factor, after a limit production factors, fixed factors of production start to be used more, due to which the diminishing returns of the factor apply.

(ii) Imperfect Substitutes: Factors of production are not perfect substitutes for each other. The firm can profitably substitute one factor for another only to an extent. Beyond that limit, substitution by increasing units of the variable factor gives rise to diminishing returns.

(iii) Lack of co-operation – After the ideal combination in the factors of production, on increasing the units of the variable factor, there is a better coordination between the variable factor and the fixed factor, which is the reason for the diminishing returns.

11. Explain the internal economies of scale of production.

Ans. Those savings which a firm gets by increasing the size of production are called internal savings. Some of the internal savings are as follows-

(i) Labor savings – A firm can use complex division of labor to increase the scale of production. Complex division of labor increases the efficiency and productivity of labour.

(ii) Managerial savings – Larger scale of production allows the firm to employ efficient and efficient managers. Due to skilled and efficient managers, production increases at a higher rate.

(iii) Technical savings- Due to the large size of production, the possibility of using advanced and developed production technology of production increases. The improved production technology leads to increased returns.

(iv) Financial Risks: A firm with a large size has a high degree of credit reputation. A firm with a large size can easily take a larger size at a lower rate of interest.

(v) Savings of buying and selling – A firm which increases the size of production buys intermediate goods in large quantities and produces in large quantities. The firm benefits from buying and selling on a large scale.

12. What are external savings? Briefly tell.

Ans. When an industry expands as a whole, new markets, new production techniques, Developed and efficient management, and complex division of labor increases the possibilities of exploitation of new discoveries. In other words, the overall expansion of the industry is beneficial to all firms whether the firm increases its scale of production or not. These are called external savings. Some of the outliers are as follows-

(i) Savings of density

(ii) Savings of information

 (iii) Savings of decentralisation.

13. Explain the difference between short run and long run. 

Ans. difference between short run and long run

(i) Short run means the time period which is less than the time period required for conversion of fixed factors. Whereas long term is the time period. In which the time period required for change in fixed factors is longer.

(ii) In the short run the firm can change the level of output by changing the variable factor of production while in the long run the firm can change the scale of production by changing all the factors.

(iii) In the short run one factor is variable and other factors remain constant while in the long run the firm can change all the factors.

14. Briefly explain the constant proportion production function.

Ans. When a firm makes a proportionate change in all factors, it is said that the scale of production of the firm changes. The production function which studies the scale of production is called constant proportion production function. Constant Proportion Production Function deals with the production behavior in which all factors are changed in proportion. Large production scale indicates maximum production capacity and small production scale indicates low production capacity. The ratio of means is constant at different scales.

15. Briefly explain the variable ratio production function.

Ans. In a variable proportion production function, different factors of production have different proportions at different levels of production. The factors whose units are increased are called variable factors and the factors which remain constant are called fixed factors. Changes in one factor and keeping the other factors constant are only related to the short run.

16. Differentiate between fixed proportion and variable proportion production function.

ANS.

(i) In a fixed proportion production function, the proportion of different factors at different quantities of output remains the same, while in a variable proportion production function, the proportion of different factors at different levels of output is different.

(ii) Due to change in all factors of production due to change in constant proportion function of production.

(iv) Constant proportion function is concerned with the long run while the variable proportion function quantity of output changes while in the variable proportion production function quantity of output changes due to change in one factor of production.

(iii) In constant proportion the change in the quantity of output is due to a change in the scale of production whereas in variable proportion the change in the quantity of output is related to the short run of output level.

17. State the relation between marginal product and total product.

Ans. Relationship between marginal product and total product-

(i) As long as marginal product increases, total product increases at a higher rate.

(ii) When marginal product becomes almost constant, total product grows at a uniform rate.

(iii) When marginal product decreases but is positive, then total product increases least.

(iv) Total product is maximum when marginal product is zero.

(v) When marginal product is negative, total product tends to decrease.

18. Write the relationship between average product and marginal product. 

Ans. (i) When marginal product is greater than average product, average product increases.

(ii) When marginal product is equal to average product, average product is greater. When marginal product is less than average product, there is a decrease in average product.

marginalproduct5371911599499829638

19. Why does the marginal product curve have an inverted U shape?

Ans. At the beginning of the production process, a firm receives increasing returns to a variable factor. Therefore, on increasing the employment of each additional unit of variable factor, the proportional increase in the total output takes place at a higher rate. Hence the marginal product shifts upwards.

After this, when equilibrium returns to the factor apply, the proportional increase in total output becomes constant or the proportional increase in total output occurs at the same rate when the employment of an additional unit of the variable factor is increased.

Lastly, when diminishing returns to a factor apply, increasing the employment of one additional unit of the variable factor results in a proportionate increase in total output at a lower rate. Hence the marginal product curve slopes downward.

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20. Why is the average product curve inverted U shaped?

Ans. In the beginning of the production process, by increasing the units of the variable factor, increasing returns are obtained, due to which the total output per unit factor is obtained at a higher rate.

Hence the average product curve shifts upwards. After this, equity returns apply, then total output per unit factor is obtained at the same rate. The average product becomes constant. Finally, when the diminishing returns to the economy apply, increasing the employment of units of the variable factor results in less total output per unit of factor, that is, the average product curve falls downwards.

800px Kuznets curve

21. Write the difference between the law of diminishing returns and the law of variable proportion.

Ans. The traditional form of the law of diminishing returns is the law of variable proportions. David Ricardo propounded the law of diminishing returns. This law was propounded to explain the decrease in the productivity of the agricultural sector on increasing the units of variable factor in the agricultural sector.

Modern economists have propounded the law of variable proportion to develop the field of use of this law. Modern economists have recognized that diminishing returns apply to the industrial sector as well as to the agricultural sector. The use of fixed factors and units of variable factor increases the total product at a higher rate up to a limit, after that increasing the units of variable factor results in diminishing returns to the factor.

22. Write the difference between fixed cost and variable cost.

Ans. (i) That part of the cost which does not change with the change in the level of production is called fixed cost while the cost which changes with the change in the level of production is called variable cost.

(ii) Fixed cost is not related to the level of production, it is the same cost at zero production level and maximum production level. Whereas variable cost is zero at zero output level and variable cost increases as output level increases.

(ii) Example—Fixed cost—

(1) Rent of land, (2) Wages of permanent workers etc. Variable cost- (i) Cost of raw material,

(2) Wages of temporary labor etc.

23. Write about the uniqueness of rectangular hyperbola.

Ans. The average fixed cost curve has the same shape as a rectangular hyperbola.

If we take any point on average fixed cost, then the product of AFC and production quantity at that point is equal. This is because the product of AFC and production volume equals total fixed cost. Total fixed cost remains the same at each level of production. A curve with this characteristic is called a rectangular hyperbola.

24. Explain the concept of opportunity cost.

Ans. The cost of a resource in the second level of best use is called its opportunity cost. There is an opportunity cost to every resource that has alternative uses.

The firm’s own resources used in production also have an opportunity cost. For example, the opportunity cost of a self-employed worker is equal to that worker’s wage in the labor market.

if he offers his services to others.

25. Does marginal cost include fixed cost? explain .

Ans. Marginal cost is the increase in total product by increasing one additional unit of product. Thus marginal cost is an additional cost. An additional cost is a variable cost. Hence marginal cost cannot be a part of fixed cost as fixed cost remains same at every level of output. Fixed costs do not change with fluctuations in production levels. So the question does not arise that marginal cost includes fixed cost also.


long answer type questions


1. Explain the law of returns to scale.

Ans. The law of returns to scale – in the long run a form can change all factors of production. The relationship between the proportional increase in two or more factors and the quantity of output in the long run is called returns to scale. There are three laws of returns to scale-

(i) Increasing returns to scale- If there is a more proportional increase in the total physical product when there is a proportional increase in two or more factors, then it is called increasing returns to scale.

(ii) Econometrics Returns to Scale – If there is a proportional increase in the physical output of two or more inputs, then it is called Econometrics Returns to Scale.

(iii) Diminishing returns of scale – If there is a small increase in the total physical product on proportional increase in two or more factors, then it is called diminishing returns of scale.

The diagram shows increasing returns from point A to B, parity returns from point B to C and diminishing returns from C to D.

2. Explain production function. Or, explain short run and long run production function.

Ans. A producer uses various inputs in the production of a commodity. Technical necessity is the most important factor in determining the proportion in which different inputs are to be used to ensure the attainment of a given output level. The number of units of different inputs to be used depends on the present state of technology.

The production function of the inputs and the goods produced from them under the given technology. Expresses the relationship between quantity (output). In the words of Lipsey, “It (production function) is the technology relationship that shows how much can be produced with a given quantity of inputs, given technical knowledge.”

In other words, the production function deals with the quantity of different inputs or factors to be used to increase the output under the given technology. In short, production function can be defined as the technical relationship that describes the maximum output that can be obtained from the use of various inputs.

It is clear from the above discussion that the production function expresses the physical relationship between the inputs and the output resulting from them at a given point of time on the basis of the given technical knowledge. Here the word input is meant in a wider context which includes all the things used for the production of the commodity, such as labour, land, fuel, raw material etc.

Mathematically, the production function can be presented in the following form.

Q=f(L, K, M, I,V, E) Here,

Q = Product

F = function

L = labor input

K = capital input

M = land exchange

I = Raw

V = returns to scale

E= Efficiency

There are many types of production functions, but keeping in mind the prescribed syllabus, we are taking the following two production functions here:

(1) Short run production function,

(ii) Long run production function

(i) Short-run Production Function – In this type of production function, one factor is considered variable and the rest are fixed and additional units of variable factors are used to increase production. For the increase in production like drugs, considering land and capital as fixed, the functions of labor (variable) are used more and more. This type of production function is found in the short run. In the short term, the time is so short that all the resources cannot be increased simultaneously. Therefore, more and more units of the variable factor are added to increase production.

Obviously, increase in production is the result of more use of variable factor. Therefore, this situation or production function is called Returns to variable factor or Returns to a factor. The ratio of fixed and variable factors keeps on changing due to the use of additional units of variable factors along with fixed factors under the return of Sion. Therefore, this condition of the production function has been explained by the Law of Variable Proportions.

(ii) Long-run Production Function – In this type of production function, all factors (inputs) are considered variable and they are increased in the same proportion in which production is to be increased.

It means, treating all the dreams as variable, increasing them in the same proportion for production growth. This type of production function is found in the long run. In the long run there is so much time that all the factors can be changed i.e. the scale of production can be increased or decreased. Therefore, in this case the increase in output is a result of change in scale and it is called returns to scale.

3. Explain the law of diminishing marginal product.

Ans. The law of diminishing marginal product is a fundamental law of economics. Marshall first presented this law in a scientific way. According to Marshall, the work area of ​​this law was limited to agriculture, but according to the modern interpretation of the law, this law is functional in all areas of economics. An explanation of law by Marshall Marshall defined this law in this way.

Of type – “Unless the method of doing agriculture is not improved, in general, due to excessive use of labour and capital on the land, the increase in production is less than the proportion of their increase.” According to the above definition, if more and more units of labor and capital are used on a piece of land, then production does not increase in the proportion in which the units of labor and capital are increasing. The increase in output is less than the proportion of units of labor and capital. In short, with the use of more units of labour and capital, their marginal physical product falls.

Modern interpretation of the rule – Early economists considered this rule to be working in the field only. Pro. Marshall was of the opinion that the law of diminishing returns applies in the industries where nature predominates and the law of increasing returns applies in those where man predominates.

But modern economists are of the opinion that the scope of the law of continuous origin is not so limited. The reason for the application of this rule is not the predominance of nature in production, but the stability of any one factor. If any factor becomes stagnant in the industry other than agriculture, then the law of diminishing returns (law of diminishing returns) applies.

According to Benham – “When the proportion of any one factor increases in the combination of factors, then after a time the marginal and dew physical production of this factor starts falling.” Under this rule some resources are fixed and some are variable. To increase production, more units of variable factor (eg-labour, capital) are used.

As a result of an increase in the units of variable factors, total production increases at a decreasing rate, that is, marginal physical production decreases. According to this rule, the increase in production is due to the increase in the quantity of variable factor, hence it is called Law of Decreasing Returns to a Variable Factor.

4. Explain the law of variable proportions. 

Ans. The law of variable proportions studies the production function by keeping one-factor constant and making the other factor variable. In fact, this law is a refined form of the law of diminishing production (there are returns) because the law of diminishing production also tells how production is affected if one factor is constant and the other is variable.

According to the law of variable proportions, keeping a one-factor constant and making the other variable, the output increases up to a point and then starts falling. Various economists have defined this rule, in which there is no significant difference.

According to Bendam – “If the proportion of one factor in the combination of factors is increased, then after a limit first the marginal physical product obtained from that factor and then the average physical product will start falling.”

This law is called the law of variable proportions because with the use of each additional unit of a variable factor, the factor ratio between fixed and variable factors keeps on changing. The law of variable proportions is a new name for diminishing scale, which was propounded by Marshall and other economists.

Assumptions – The law of variable proportions applies when the following assumptions are satisfied:

(i) The technical condition is assumed to be constant. With improvements in production technology, the implementation of the rule may be postponed for the foreseeable future.

(ii) The quantity of some inputs should remain constant. If all inputs are variable, then this law does not apply because output goes on increasing. Inputs are stable only in the short run. Therefore, this rule also applies in the short run.

(iii) It is assumed that a change in the ratio of factors is possible. This law does not work in productions in which the ratio of different inputs is constant, such as a single person can work on a type of machine. Therefore, here we refer to the type of machine as stationary and

Labor cannot be considered variable.

 (iv) This rule is applicable in the short run.


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FAQs


1. Give an example of consequential cost.

Ans. Raw material cost.

2. Do ATC and AVC ever meet?

Ans. They never meet because the difference between ATC and AVC is AFC, which can never be zero.

3. What are indirect costs?

Ans. The expenses incurred on the means of production and inputs are indirect costs.

4. What is the nature of the shape of the TFC curve?

Ans. It is a straight line parallel to the X-axis.


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