# Production and Costs Exam Questions Class 12 Economics

Please see Production and Costs Exam Questions Class 12 Economics below. These important questions with solutions have been prepared based on the latest examination guidelines and syllabus issued by CBSE, NCERT, and KVS. We have provided Class 12 Economics Questions and answers for all chapters in your NCERT Book for Class 12 Economics. These solved problems for Production and Costs in Class 12 Economics will help you to score more marks in upcoming examinations.

## Exam Questions Production and Costs Class 12 Economics

MCQs

Question. Production function shows technical relationship between physical inputs and output of a commodity
a) Technological relationship between inputs and cost
b) Economic relationship between inputs and output
c) Technological relationship between inputs and output
d) Technological relationship between inputs and price

C

Question. How is TPP derived from MPP?
b) Cumulative subtraction
c) Cumulative product
d) Cumulative division

A

Question. What will be the MP when TP is maximum?
Marginal Product will be zero when Total Product is maximum.

Question. TPP increases only when MPP increases.
False, TPP also increases when MPP decreases but remains positive.

Question. When there are diminishing returns to a factor marginal and total products always fall.
False, only MPP falls, not TPP. In case of diminishing returns to a factor TPP increase at diminishing rate.

Question. Why AFC curve never touches “x‟ axis though lies very close to x axis?
Because TFC can never be zero.

Question. Why TVC curve start from origin?
TVC is zero at zero level of output.

Question. What are Returns to a Factor? What do you mean by the Law of Diminishing Returns?
Returns to a Factor is used to explain the behaviour of physical output as only one factor is allowed to vary and all other factors are kept constant. This is a short-run concept. The law of diminishing returns to a factor states that as the variable factor is allowed to vary (increase), keeping all other factors constant, and the Marginal Product first increases, reaches it is the maximum and then declines and even becomes negative.

Question. What is change in demand?
Change in Demand: – It is also called shift in demand curve. When quantity of commodity change due to change in factor other than price. It has two types-
a) Increase in Demand b) Decrease in Demand

Question. Explain the relation between AC and MC with the help of a diagram.
The relation between AC and MC is explained with the help of a diagram as under:

Observations:
(i) When AC declines, MC declines faster than AC. So that MC curve remains below AC curve. Implying that AC > MC. In the figure, AC curve is falling till point E and MC continues to be lower than AC.
(ii)When AC increases, MC increases faster than AC. So that MC curve is above the AC curve. Implying that AC < MC. In the figure, AC start rising from point E and beyond E, MC is higher than AC.
(iii) MC curve cuts AC curve from its lowest point. When average curve is minimum then MC = AC. In the figure, MC curve is intersecting AC curve at its lowest or minimum point E.

Question. Explain the determinants of supply?
Supply is the quantity of a good which is offered for sale at a given price at a particular time. Supply is a desired flow. It measures how much firms are willing to sell and not how much they actually sell. Supply may exceed or fall short of production. Supply in a particular year is the total production plus-minus stocks of the commodity.
Supply function can be expressed as
Sx = f (Px, Pa… Pc, PL… PO, T, Cr, St, O, G)
Where Px → own price of good x, Pa … Pc → prices of related goods, PL … PO→ prices of inputs, T → time, St → the state of technology, O → objectives of the firm, and G → taxes, subsidies and regulation.
Determinants of supply can be understood from the diagram below:

Some of the determinants are explained here:
1. Production cost – Since most private companies’ goal is profit maximization. Higher production cost will lower profit, thus hinder supply. Factors affecting production cost are: input prices, wage rate, government regulation and taxes, etc.
2. Technology – Technological improvements help reduce production cost and increase profit, thus stimulate higher supply.
3. Number of sellers – More sellers in the market increase the market supply.
4. Expectation for future prices – If producers expect future price to be higher, they will try to hold on to their inventories and offer the products to the buyers in the future, and thus they can capture the higher price.

Numerical Problems with Solutions:

Production

Elasticity of Supply:

Question. Due to a 10 per cent rise in the price of a commodity, its quantity supplied rises from 400 units to 450 units. Calculate its price elasticity of supply. Is the supply elastic?