Briefly explain the concept of the cost function.

1

(a)

Cost function shows functional relationship between output and cost of production. It gives the least cost combination of inputs corresponding to different levels of output. Cost function is given as:
C = f(X), ceteris paribus, where,
C = Cost and
X = Output

Can there be some fixed cost in the long run? If not, why?

1

(a)

No, there are no fixed costs in the long run as all the factors become variable. Fixed cost exists only in short run.

What do the short run marginal cost, average variable cost and short run average cost curves look like?

1

(a)

The Short run marginal cost, average variable cost and short run average cost curves are U-shaped because of Law of variable proportion.

What are total fixed cost, total variable cost and total cost of a firm? How are they related?

3

(a)

What does the average fixed cost curve look like? Why does it look so?

3

(a)

Why is the short run marginal cost curve U-Shaped?

3

(a)

How does AFC behave as output is increased?

3

(a)

What is the behaviour of average fixed cost as output increases?

3

(a)

The following table gives the total cost schedule of a firm. It Is 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 the corresponding values of output.

Q	TC
1	50
2	65
3	75
4	95
5	130
6	185

6

(a)

A firm's SMC schedule is shown in the following table. The total fixed cost of the firm is Rs. 100 Find the TVC, TC,  AVC and SAC schedules of the firm.

Q	SMC
0	-
1	500
2	300
3	200
4	300
5	500
6	800

6

(a)