Author ✍️ R. Littey
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Hello! To strengthen your preparation for the Class 12th (Economics) board examination, 50 important one-liner questions and answers from the chapter 'Production and Cost' are provided here. These are extremely useful for both MP Board and CBSE.
Chapter 3: Production and Cost
(Important Q&A)
📊 Part 1: Theory of Production
Q1. What is meant by Production?
Ans. Converting inputs into outputs is called production.
Q2. What does a Production Function show?
Ans. It shows the technical relationship between physical inputs and physical output.
Q3. What is the Short Run?
Ans. The time period in which at least one factor of production (e.g., capital) remains fixed.
Q4. Define Long Run.
Ans. The time period in which all factors of production are variable.
Q5. What is Total Product (TP)?
Ans. The total volume of goods produced by using variable factors in a given time.
Q6. What is the formula for Average Product (AP)?
Ans. AP = TP / L (where L is units of labor).
Q7. What is Marginal Product (MP)?
Ans. The increase in total product resulting from the use of one additional unit of a variable factor.
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Q8. To which period does the Law of Variable Proportions relate?
Ans. Short Run.
Q9. To which period does Returns to Scale relate?
Ans. Long Run.
Q10. When MP is zero, what is the state of TP?
Ans. Total Product (TP) is at its maximum point.
Q11. What is the effect on TP when MP is negative?
Ans. Total Product (TP) starts declining.
Q12. Give an example of a Fixed Factor.
Ans. Machinery or building.
Q13. Give an example of a Variable Factor.
Ans. Raw materials or daily labor.
Q14. Where does the First Stage of production end?
Ans. Where AP is maximum and equal to MP.
Q15. In which stage does a rational producer want to produce?
Ans. Second Stage (Stage of Diminishing Returns).
💰 Part 2: Concept of Cost
Q16. What is meant by Cost?
Ans. The monetary expenditure incurred on the production of a good is called cost.
Q17. What are Explicit Costs?
Ans. Cash payments made to outsiders for their services.
Q18. What are Implicit Costs?
Ans. Estimated costs of self-owned factors (e.g., rent of owner's own land).
Q19. What is Opportunity Cost?
Ans. The cost of sacrificing the next best alternative.
Q20. Total Cost (TC) is the sum of which two costs?
Ans. Total Fixed Cost (TFC) and Total Variable Cost (TVC).
Q21. Is Fixed Cost zero when production is zero?
Ans. No, fixed cost remains positive even when production is zero.
Q22. Which cost is never zero in the short run?
Ans. Total Fixed Cost (TFC).
Q23. What is the shape of the Average Fixed Cost (AFC) curve?
Ans. Rectangular Hyperbola.
Q24. Can the AFC curve ever touch the 'X' axis?
Ans. No, because fixed cost is never zero.
Q25. What is the shape of the Average Cost (AC) curve?
Ans. U-shaped.
Q26. What is Marginal Cost (MC)?
Ans. The increase in total cost resulting from producing one additional unit of output.
Q27. At which point does the MC curve intersect the AC curve?
Ans. At the minimum point of AC.
Q28. What happens to TFC if production increases?
Ans. TFC remains constant.
Q29. What is the shape of the TVC curve?
Ans. It starts from the origin and is an inverse 'S' shape.
Q30. What is the formula for Average Variable Cost (AVC)?
Ans. AVC = TVC / Q (where Q is quantity of output).
💡 Part 3: Important Conclusions
Q31. What is the main cause of Increasing Returns to Scale?
Ans. Division of labor and specialization.
Q32. When AC is falling, what is the relationship between MC and AC?
Ans. MC < AC (Marginal cost is less than average cost).
Q33. What is Monetary Cost?
Ans. Production cost expressed in terms of money.
Q34. Who gave the idea of Real Cost?
Ans. Marshall (in terms of pain and sacrifice).
Q35. Is there any Fixed Cost in the long run?
Ans. No, all costs are variable in the long run.
Q36. How does technical progress affect the production function?
Ans. The production function shifts upward.
Q37. What are the 'Law of Production' and 'Law of Cost' to each other?
Ans. They are mirror (inverse) images of each other.
Q38. What is the shape of the Total Product (TP) curve?
Ans. Initially increases at an increasing rate, then at a decreasing rate.
Q39. Write the formula for calculating Marginal Product.
Ans. MPn = TPn - TPn-1
Q40. Which cost fluctuates with production?
Ans. Total Variable Cost (TVC).
Q41. What is meant by Productivity of Labor?
Ans. Average production per worker.
Q42. Why is the Short-run Average Cost (SAC) curve U-shaped?
Ans. Due to the Law of Variable Proportions.
Q43. What is the Long-run Average Cost (LAC) curve called?
Ans. Envelope Curve.
Q44. If TC = 100 and TFC = 40, what will be the TVC?
Ans. 60 (100 - 40).
Q45. What is the meaning of Selling Cost?
Ans. Expenditure incurred on advertisement and marketing.
Q46. Normal Profit is considered a part of which cost?
Ans. Implicit Cost.
Q47. When MP increases, at what rate does TP increase?
Ans. At an increasing rate.
Q48. On what does Marginal Cost depend?
Ans. Only on variable costs.
Q49. What are the main Factors of Production?
Ans. Land, Labor, Capital, and Entrepreneurship.
Q50. What is the meaning of 'Cost' in Economics?
Ans. Explicit Cost + Implicit Cost + Normal Profit.
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