Production and Costs Important Questions for Class 12 Economics Concept of Production Function
1.Production Function It studies the functional relationship between physical inputs and physical outputs. It is expressed as Q x = F(L,K)
Where, Q x = Quantity of output, F = Function, L = Labour, K = Capital
2.Different Periods in Production
- Market period It is the period during which production factors can not be changed at all. Hence, the production function is written as Q x = F(L,K), where both labour and capital are taken as fixed.
- Short period It is a time period in which the producer can change only the variable factors of production while the fixed factors_of production remains constant. The production function is written as Q x = F (L, K), where labour is taken as a variable and capital as fixed factor .
- Long period It is a time period when the producer has enough time to change both fixed and variable factors of production, infact all factors are variable in the long-run. The production function is written as Q x = F (L, K) where both labour and capital are variable in nature.
3.Total Product (TP) It is the sum total of output corresponding to each unit of the variable factor used in the process of production.
4.Marginal Product (MP) It is an additional output produced by the use of an additional unit of the variable factor, fixed factor remaining constant.
Where, ATP = Change in Total Product AL = Change in labour (variable factor)
5.Average Product (AP)
It is per unit output of the variable factor.
6.Returns to a Factor It refers to the behaviour of output when only one variable factor of production is increased fixed factors remaining constant. This is a short-run phenomenon.
7.Returns to Scale It refers to change in physical output of a good on account of increase in all inputs required to produce a good simultaneously in the same proportion. This is a long-term phenomenon.
8.Law of Variable Proportion It states that as more and more units of the variable factors are used (alongwith the fixed factor), a stage must come when Total Product of the variable factor starts declining, after reaching its maximum points or in other word Marginal Product of variable factors initially increase, reaches its maximum point and eventually falls to become negative.
9.Assumptions of Law of Variable Proportion
- There are only two factors of production, i.e. labour and capital. Where labour is variable and capital is fixed.
- State of technology remains constant.
10.Three Stages of Law of Variable Factor/Variable Proportions
- Stage of increasing returns to a factor
- Stage of diminishing returns to a factor
- Stage of negative returns to a factor
11.Law of Diminishing Marginal Product This law states that with the increase in a variable factor, keeping all other factors constant, the Marginal Product of the variable factor first increases then decreases and eventually becomes negative.
12.Point of Inflexion It is a point from where slope of TP curve changes. TP has been increasing at an increasing rate, from this point onwards TP increases, but only at the diminishing rate. Also, at this point MP is maximum.
13.Postponement of the Law of Variable Proportions
- When there is improvement in technology used in the process of production. So, that greater output is achieved with the same inputs.
- When some substitute of the fixed factors are discovered. So, that the constraint of fixity of the factor is removed. However, such a situation is very rare, if not impossible.
14.Relationship between Total Product and Marginal Product
- When MP increases, TP increases at an increasing rate.
- When MP reaches at its maximum, TP changes its slope termed as point.of inflexion.
- When MP falls but remains positive, TP increases at a diminishing rate.
- When MP is zero, TP is maximum.
- When MP becomes negative, TP start to fall.
15.Relationship between Marginal Product and Average Product
- When AP increase, MP > AP.
- When AP is maximum MP = AP.
- When AP decreases, MP < AP.
- MP can become zero or negative, however AP can never be zero.
Previous Years Examination Questions
1 Mark Questions
1.Give the meaning of returns to a factor. (Delhi 2014; All India 2009)
Ans . Returns to a factor refers to the behaviour of output when only variable factor of production is increased in the short-run and fixed factors remaining constant.
2.Define Marginal Product. (All India 2014)
Ans.
Marginal Product is the change in Total Product as a result of unit change in the input of a variable
3.Define production function. (All India 2011,2008,2006; Delhi 2009,2007)
Ans. Production function studies the functional relationship between physical inputs and physical output.
It is expressed as Q x = F (t, K)
Where, Q x = Quantity of output
L = Labour
K = Capital
4.Give meaning of Marginal Physical Product. (All India 2007; Delhi 2006,2006C)
Ans.
Marginal Physical Product refers to an additional output caused by use of an additional unit of the variable factor, fixed factor remaining constant, it is calculated as,
3 Mark Questions
5.State the relation between Marginal Revenue and Average Revenue. (Delhi 20014)
Ans.Relationship between MR and AR are:
(i) When AR is constant, MR – AR.
(ii) When AR is diminishing, AR > MR.
(iii) MR can be negative, but not AR.
6.Why is Average Revenue always equal to price? (All India 2014)
Ans. Average Revenue is the per unit revenue (price) received from the sale of one unit of a commodity.
With the help of following equation we can prove AR = P.
7.Giving reasons, explain the Law of Variable Proportion. (All India 2014)
Ans. The Law of Variable Proportion shows the impact on output when units of variable factor are increased, keeping fixed factors constant in the short-run.
The law states that if more and more units of a variable factor are employed with fixed factors, Total Physical Product (TPP) increases at an increasing rate in the beginning, then increases at a diminishing rate and finally starts falling.
| Land (Acre) | Number of labourers | TPP (Quintal) | APP (Quintal) | MPP (Quintal) |
| 1 | 0 | 0 | 0 | – Stage l |
| 1 | 1 | 2 | 2 | 2 |
| 1 | 2 | 6 | 3 | 4 |
| 1 | 3 | 12 | 4 | 6 |
| V | 4 | 16 | 4 | 4 |
| 1 | 5 | 18 | 3.6 | 2 Stage II |
| 1 | 6 | 18 | 3 | 0 |
| 1 | 7 | 14 | 2 | (-) 4 Stage III |
| 1 | 8 | 8 | 1 | H 6 |
As per the above schedule,
In stage I, TPP tends to rise at an increasing rate. This corresponds to the situation of increasing return to a factor.
In stage II, TPP tends to rise at a diminishing rate. This corresponds to a situation of diminishing returns to a factor.
In stage III, TPP starts declining. This is a situations of negative returns to a factor.
8.Complete the following data (Delhi 2013)
| Units of labour | Average Product (AP) (units) | Marginal Product (MP) (units) |
| 1 | 8 | – |
| 2 | 10 | – |
| 3 | – | 10 |
| 4 | 9 | – |
| 5 | – | 4 |
| 6 | 7 | – |
Ans.
| Labour t(Q) (Units) | Total Product (TP) (units) | Average Product (AP) (units) | Marginal Product (MP) (units) |
| 1 | 8 | 8 | 8 |
| 2 | 20 | 10 | 12 |
| 3 | 30 | 10 | 10 |
| 4 | 36 | 9 | 6 |
| 5 | 40 | 8 | 4 |
| 6 | 42 | 7 | 2 |
AP = TP/Q, MP nth = TP„ – TP n _ v TP = AP x Q
9. Complete the following table (Delhi 2013)
| Units of labour | Average Product (AP) (units) | Marginal Product (MP) (units) |
| 1 | 16 | – |
| 2 | 20 | – |
| 3 | – | 20 |
| 4 | 18 | – |
| 5 | – | 8 |
| 6 | 14 | – |
Ans.
| Labour (Q) (Units) | Total Product (TP) (units) | Average Product (AP) (units) | Marginal Product (MP) (units) |
| 1 | 16 | 16 | 16 |
| 7 | 40 | 20 | 24 |
| 7 | 60 | 20 | 20 |
| 4 | 72 | 18 | 12 |
| 5 | 80 | 16 | 8 |
| 6 | 84 | 14 | 4 |
10.What is meant by returns to a factor? State the la w of diminishing returns to a factor. (Delhi 2006)
Ans. Returns to a factor refers to the behaviour of output when only variable factor of production is increased in the short-run and fixed factors remaining constant.
Law of diminishing returns to a factor This law states that with the increase in a variable factor, keeping all other factors constant, the Marginal Product of the variable factor first increases then falls and eventually becomes negative.
4 Marks Questions
11.What does the Law of Variable Proportion show? State the behaviour of Marginal Product according to this law.(All India 2012)
Ans .The Law of Variable Proportion shows the impact on output when units of variable factor are increased, keeping fixed factors constant in the short-run.
The law states that if more and more units of a variable factor are employed with fixed factors, Total Physical Product (TPP) increases at an increasing rate in the beginning, then increases at a diminishing rate and finally starts falling.
| Land (Acre) | Number of labourers | TPP (Quintal) | APP (Quintal) | MPP (Quintal) |
| 1 | 0 | 0 | 0 | – Stage l |
| 1 | 1 | 2 | 2 | 2 |
| 1 | 2 | 6 | 3 | 4 |
| 1 | 3 | 12 | 4 | 6 |
| V | 4 | 16 | 4 | 4 |
| 1 | 5 | 18 | 3.6 | 2 Stage II |
| 1 | 6 | 18 | 3 | 0 |
| 1 | 7 | 14 | 2 | (-) 4 Stage III |
| 1 | 8 | 8 | 1 | H 6 |
As per the above schedule,
In stage I, TPP tends to rise at an increasing rate. This corresponds to the situation of increasing return to a factor.
In stage II, TPP tends to rise at a diminishing rate. This corresponds to a situation of diminishing returns to a factor.
In stage III, TPP starts declining. This is a situations of negative returns to a factor.
As per the above schedule, in stage I Marginal Product is rising but in stage II Marginal Product tends to decline and in stage III Marginal Product becomes negative.
12.What does the Law of Variable Proportion show? State the behaviour of Total Product according to this law. (Delhi 2012)
Ans .The Law of Variable Proportion shows the impact on output when units of a variable factor are increased, keeping fixed factors constant in the short-run
It states that as more and more units of the variable factors are used (along with the fixed factor), a stage must come when Total Product of the variable factor starts declining, and eventually starts falling.
As per the above schedule, in phase I, Total Product tends to rise at an increasing rate. This corresponds to the situation of increasing returns to a factor. In phase II, Total Product tends to rise at a diminishing rafe this corresponds to a situation of diminishing returns to a factor. In Phase III, Total Product starts declining,-this is actuation of negative returns to a factor.
13.Prepare a Marginal Product schedule for increasing production when only one input is increased. Indicate the phases of the Law of Variable Proportion. (All India 2010)
Ans. The Law of Variable Proportion shows the impact on output when units of variable factor are increased, keeping fixed factors constant in the short-run.
The law states that if more and more units of a variable factor are employed with fixed factors, Total Physical Product (TPP) increases at an increasing rate in the beginning, then increases at a diminishing rate and finally starts falling.
| Land (Acre) | Number of labourers | TPP (Quintal) | APP (Quintal) | MPP (Quintal) |
| 1 | 0 | 0 | 0 | – Stage l |
| 1 | 1 | 2 | 2 | 2 |
| 1 | 2 | 6 | 3 | 4 |
| 1 | 3 | 12 | 4 | 6 |
| V | 4 | 16 | 4 | 4 |
| 1 | 5 | 18 | 3.6 | 2 Stage II |
| 1 | 6 | 18 | 3 | 0 |
| 1 | 7 | 14 | 2 | (-) 4 Stage III |
| 1 | 8 | 8 | 1 | H 6 |
As per the above schedule,
In stage I, TPP tends to rise at an increasing rate. This corresponds to the situation of increasing return to a factor.
In stage II, TPP tends to rise at a diminishing rate. This corresponds to a situation of diminishing returns to a factor.
In stage III, TPP starts declining. This is a situations of negative returns to a factor.
14.Explain the likely behaviour of Total Product when only one input is increased for increasing production? Use diagram. (Delhi 2010c)
Ans.The Law of Variable Proportion shows the impact on output when units of variable factor are increased, keeping fixed factors constant in the short-run.
The law states that if more and more units of a variable factor are employed with fixed factors, Total Physical Product (TPP) increases at an increasing rate in the beginning, then increases at a diminishing rate and finally starts falling.
| Land (Acre) | Number of labourers | TPP (Quintal) | APP (Quintal) | MPP (Quintal) |
| 1 | 0 | 0 | 0 | – Stage l |
| 1 | 1 | 2 | 2 | 2 |
| 1 | 2 | 6 | 3 | 4 |
| 1 | 3 | 12 | 4 | 6 |
| V | 4 | 16 | 4 | 4 |
| 1 | 5 | 18 | 3.6 | 2 Stage II |
| 1 | 6 | 18 | 3 | 0 |
| 1 | 7 | 14 | 2 | (-) 4 Stage III |
| 1 | 8 | 8 | 1 | H 6 |
As per the above schedule,
In stage I, TPP tends to rise at an increasing rate. This corresponds to the situation of increasing return to a factor.
In stage II, TPP tends to rise at a diminishing rate. This corresponds to a situation of diminishing returns to a factor.
In stage III, TPP starts declining. This is a situations of negative returns to a factor.
15.Identify different phases of the Law of Variable Proportion from the following schedule. Give reasons for your answer. (Delhi 2006C)
Ans.
6 Marks Questions
16. State the behaviour of Marginal Product is the Law of Variable Proportions. Explain the causes of this behaviour. (Delhi 2014)
Ans. Law of Variable Proportion states that the Marginal Product of a factor input, initially rises with its employment level. But after reaching a certain level of employment, it starts falling.
This law may be explained with the help of following schedule and diagram:
Following observations can be made from the given table and curve:.
(i) MP rises till 3rd unit of labour are employed, in this condition TP increases at increasing rate, this condition is called condition of increasing returns.
(ii’) With the use of 4th unit of labour, MP starts decreasing and TP increases only at decreasing rate, this condition is called condition of diminishing returns.
(iii) When decreasing MP reduces to zero, Total Product is maximum.
(iv) When Marginal Product is negative, Total Product starts declining. (l)
Law of Variable Proportion basically depends on diminishing returns to marginal factor.
It’s main cause are:
(a) Fixity of theiactor. (b) Imperfect factor substitutability.
(c) Poor coordination between the factors.
17. State giving reasons whether the following statements are true or false.
(i) Average Product will increase only when Marginal Product increases. (All India 2013)
(ii) Under diminishing returns to a factor, Total Product continues to increase till Marginal Product reaches zero.
(All India 2011)
(iii) Where there are diminishing returns to a factor, Total Product first increases and then starts falling. (Delhi 2010)
(iv) When Marginal Product falls, Average Product will also fall. (Delhi 2010)
(v) Total Product always increases whether there is increasing returns or diminishing
returns to a factor. (All India 2010)
(vi) When there are diminishing returns to a factor, Total Product always decreases. (Delhi 2009)
(vii) Product will increase only when Marginal Product increases. (Delhi 2009)
(viii) Increase in Total Product always indicates that there are increasing returns to a factor. (Delhi 2009)
(ix) When there are diminishing returns to a factor, Marginal product and Total Product both fall. (Delhi 2009; All India 2009)
Ans.
(i) False, AP rise even when MP falls, and AP and MP are equal at the maximun point of AP.
(ii) True, under diminishing returns to a factor, Marginal Product tends to fall which implies that Total Product should be increasing at a diminishing rate.
(iii) False, under diminishing returns to a factor, Marginal Product tends to fall. Falling Marginal Product implies that Total Product should be increasing at a diminishing rate.
(iv) False, Average Product can rise even when Marginal Product falls.
(v) True, in a situation of increasing returns to a factor, Marginal Product tends to rise. Accordingly, Total Product should be increasing at an increasing rate. Under diminishing returns to a factor, Marginal Product tends to fall which implies that Total Product should be increasing at a diminishing rate.
(vi) False, in a situation of diminishing returns to a factor, Marginal Product tends to fall which implies that Total Product should be increasing at a diminishing rate.
(vii) False, Total Product will also increase when Marginal Product decreases. In that case, Total Product increases at a diminishing rate.
(viii) False, it is not necessary because in the stage of diminishing returns to a factor, Total Product also increases, but at a diminishing rate.
(ix) False, in the case of diminishing returns to a factor, only Marginal Product tends to fall. Total Product tends to increase at a diminishing rate.
18.Explain the Law of Returns to a Factor with the help of Total Product and Marginal Product schedule. (Delhi 2013; All India 2010,2009)
or
Explain the Law of Variable Proportion with the help of Total Product and Marginal Product curves. (Delhi 2010,2008; All India 2006)
or
What are the different phases in the behaviour of Total Product in the Law of Variable Proportion? Also give reasons behind the behaviour in each case. (Delhi 2009C, 2007)
Ans. The Law of Variable Proportion shows the impact on output when units of variable factor are increased, keeping fixed factors constant in the short-run.
The law states that if more and more units of a variable factor are employed with fixed factors, Total Physical Product (TPP) increases at an increasing rate in the beginning, then increases at a diminishing rate and finally starts falling.
| Land (Acre) | Number of labourers | TPP (Quintal) | APP (Quintal) | MPP (Quintal) |
| 1 | 0 | 0 | 0 | – Stage l |
| 1 | 1 | 2 | 2 | 2 |
| 1 | 2 | 6 | 3 | 4 |
| 1 | 3 | 12 | 4 | 6 |
| V | 4 | 16 | 4 | 4 |
| 1 | 5 | 18 | 3.6 | 2 Stage II |
| 1 | 6 | 18 | 3 | 0 |
| 1 | 7 | 14 | 2 | (-) 4 Stage III |
| 1 | 8 | 8 | 1 | H 6 |
As per the above schedule,
In stage I, TPP tends to rise at an increasing rate. This corresponds to the situation of increasing return to a factor.
In stage II, TPP tends to rise at a diminishing rate. This corresponds to a situation of diminishing returns to a factor.
In stage III, TPP starts declining. This is a situations of negative returns to a factor.
19.Identify the three phases of the Law of Variable Proportion from the following and also give reasons behind each phase.
Ans.
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