CBSE 11th Economics - Cost Six Marks Questions | QB365

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CBSE 11th Economics - Cost Six Marks Questions

Published on: 30/09/2019

Cost

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Questions:

Generic 6

10 x 6 = 60

Suppose that a firm's TFC is Rs.100 and MC schedule of the firm is the following:

Output(Units)	1	2	3	4	5	6	7
MC(Rs.)	10	20	30	40	50	60	70

(i) Is the MC curve U-shaped?
(ii) Derive AVC schedule. Will the AVC curve be U-shaped? Discuss why or why not?

A firm's fixed cost is 2000. Compute TVC, AVC, TC and ATC from the following table.

Output(Units)	1	2	3	4	5	6	7
MC(Rs.)	2000	1500	1200	1500	2000	2700	3500

Complete the following table if AFC of one unit of production is Rs. 60.

Output	1	2	3	4	5	6	7	8
TC	90	105	115	120	135	160	200	260
TVC
TFC
AVC
AFC
ATC
MC

Why does difference between ATC and AVC decrease with increase in level of output? Explain.

Why does the difference between Average Total Cost and Average Variable Cost decrease with an increase in the level of output? Can these two be equal at some level of output? Explain.

Calculate TC and AVC of a firm at each given level of output from its cost schedule.

Output	1	2	3	4	5	6
AFC	60	30	20	15	12	10
MC(Rs.)	32	30	28	30	35	43

The total fixed cost of a firm is Rs.12. Given below is its marginal cost schedule. Calculate total cost and average variable cost for each given level of output.

Output	1	2	3	4	5	6
Marginal Cost(Rs.)	9	7	2	4	8	12

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

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

10.

The following table shows the total cost schedule of a firm. What is the total fixed cost schedule of this firm? Calculate the TVC, AFC, AVC, SAC and SMC schedules of the firm.

Q	TC
0	10
1	30
2	45
3	55
4	70
5	90
6	120

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Answers Key:

Generic 6

10 x 6 = 60

(i) MC curve is not U-shaped.
(ii)

Output (Units)	1	2	3	4	5	6	7
TFC (Given)	100	100	100	100	100	100	100
MC (Given)	10	20	30	40	50	60	70
TVC=\(\sum\)MC	10	30	60	100	150	210	280
AVC=\(\frac{TVC}{Output}\)	10	15	20	25	30	35	40

AVC curve will not be U-shaped because AVC data does not show operation of law of variable proportion.

Output (Units)	1	2	3	4	5	6	7
MC (Given)	2000	1500	1200	1500	2000	2700	3500
TFC (given)	2000	2000	2000	2000	2000	2000	2000
TVC=\(\sum\)MC	2000	3500	4700	6200	8200	10900	14400
TC=TFC+TVC	4000	5500	6700	8200	10200	12900	16400
ATC=\(\frac{TC}{Output}\)	4000	2750	223.3	2050	2040	2150	2342.9
AVC=\(\frac{TVC}{Output}\)	2000	1750	1566.7	1550	1640	1816.7	2057.1

Output	1	2	3	4	5	6	7	8
TFC (Given)	60	60	60	60	60	60	60	60
TC (given)	90	105	115	120	135	160	200	260
TVC = TC - TFC	30	45	55	60	75	100	140	200
AVC=\(\frac{TVC}{Output}\)	30	22.5	18.3	15	15	16.7	20	25
AFC=\(\frac{TFC}{Output}\)	60	30	20	15	12	10	8.6	7.5
ATC=\(\frac{TC}{Output}\)	90	52.5	38.3	30	27	26.7	28.6	32.5
MC=\(\frac{\Delta{TC}}{\Delta{Output}}\) or \(\frac{\Delta{TVC}}{\Delta{Output}}\)	30	15	10	5	15	25	40	60

As, we know the difference between Average Total Cost and Average Variable Cost is average fixed cost (AFC = ATC- AVC) and AFC always decreases with the increase in output. It can be explained with the help of the following diagram and schedule

It can be seen from the above diagram that there is a huge gap between AC and AVC with the starting of production. The gap between them decreases with the increase in production.

It is so because the gap between AC and AVC is AFC and AFC always decreases with the increase in production. The point to be remembered is that AVC can never touch AC curve because AFC cannot be Zero.

Units of commodity	TFC	AFC
0	60	-
1	60	60
2	60	30
3	60	20
4	60	15
5	60	12

As, we know the difference between Average Total Cost and Average Variable Cost is average fixed cost (AFC = ATC- AVC) and AFC always decreases with the increase in output. It can be explained with the help of the following diagram and schedule.

It can be seen from the above diagram that there is a huge gap between AC and AVC with the starting of production. The gap between them decreases with the increase in production.

It is so because the gap between AC and AVC is AFC and AFC always decreases with the increase in production. The point to be remembered is that AVC can never touch AC curve because AFC cannot be Zero.

Units of commodity	TFC	AFC
0	60	-
1	60	60
2	60	30
3	60	20
4	60	15
5	60	12

Output	AFC (Given)	TFC = AFC x Output	MC	TVC=\(\sum\)MC	AVC\(\frac{TVC}{Output}\)	TC=TFC+TVC
1	60	60	32	32	32	92
2	30	60	30	62	31	122
3	20	60	28	90	30	150
4	15	60	30	120	30	180
5	12	60	35	155	31	215
6	10	60	43	198	33	258

Output	MC (Given)	TVC = \(\sum\)MC	TFC	TC = TFC + TVC	AVC\(\frac{TVC}{Output}\)
1	9	9	12	21	9
2	7	16	12	28	8
3	2	18	12	30	6
4	4	22	12	34	5.5
5	8	30	12	42	6
6	12	42	12	54	7

Q	SMC (given)	TFC (given)	TVC=\(\sum { MC } \)	TC=TFC+TVC	AVC= \(\frac{TVC}{Output}\)	SAC= \(\frac{TC}{Output}\)
0	-	100	0	100	-	-
1	500	100	500	600	500	600
2	300	100	800	900	400	450
3	200	100	1000	1100	333.33	366.67
4	300	100	1300	1400	325	350
5	500	100	1800	1900	360	380
6	800	100	2600	2700	433.33	450

Q	TC (given)	TFC	AFC= \(\frac{TFC}{Output}\)	TVC = TC-TFC	AVC= \(\frac{TVC}{Output}\)	SAC= \(\frac{TC}{Output}\)	SMC=\(\frac{\Delta{TC}}{\Delta{Output}}\) OR \(\frac{\Delta{TVC}}{\Delta{Output}}\)
1	5	20	2	30	30	50	30
2	65	20	10	45	22.5	32.5	15
3	75	20	6.67	55	18.33	25	10
4	95	20	5(given)	75	18.75	23.75	20
5	130	20	4	110	22	26	35
6	185	20	3.33	165	27.5	30.83	55

10.

The total fixed cost will be the same at all the levels of output ranging from zero to six. For zero output, total cost is Rs.10. At zero output, total variable cost will be zero. Hence, Rs.10 represents total fixed cost at all levels of output.