Sample Paper – Production & Costs (50 Marks)
Economics Class 12 | CBSE Pattern
Section A – Very Short Answer Questions (1 Mark each)
1. Define Production Function. [1]
It shows the technological relationship between inputs and output: Q = f(L, K).
2. What is the difference between Short Run and Long Run? [1]
In short run, at least one input is fixed; in long run, all inputs are variable.
3. Write the formula of Marginal Product of Labour. [1]
MP = ΔTP / ΔL
4. What happens to Average Fixed Cost as output increases? [1]
AFC continuously falls as output increases, because fixed cost is spread over more units.
5. What is the Shutdown point of a firm? [1]
A point where price equals AVC; the firm covers only variable costs.
Section B – Short Answer Questions (3 Marks each)
6. Explain the Law of Diminishing Marginal Product with a diagram. [3]
The law states that as more of a variable factor is used with fixed factors, MP of the variable factor eventually falls.
Stages:
Stages:
- Increasing returns
- Diminishing returns
- Negative returns
7. Distinguish between Total Product, Average Product, and Marginal Product. [3]
- Total Product (TP): Total output produced.
- Average Product (AP): Output per unit of input – AP = TP / L.
- Marginal Product (MP): Additional output due to one more unit of input – MP = ΔTP / ΔL.
8. Explain the concept of Short Run Costs. [3]
In short run, some inputs are fixed. Hence, total cost is divided into:
- Fixed Cost (TFC): Does not vary with output.
- Variable Cost (TVC): Changes with level of output.
- Total Cost (TC): TC = TFC + TVC
Section C – Long Answer Questions (5 Marks each)
9. Explain the shapes of Total Product, Marginal Product and Average Product curves with a diagram. [5]
- TP Curve: Rises initially at increasing rate, then at a diminishing rate, and finally declines.
- MP Curve: Rises first, then falls and becomes negative.
- AP Curve: Rises and then falls, always lies above MP till the two intersect.
10. Discuss the relationship between Short Run and Long Run Costs. [5]
- Short run: Firms face fixed and variable costs.
- Long run: All costs are variable; firms can change scale of production.
- Long Run Average Cost (LAC) curve is derived from Short Run Average Cost (SAC) curves.
- LAC is U-shaped due to economies and diseconomies of scale.
11. Explain the concept of Returns to Scale. [5]
When all inputs are increased in the same proportion:
- Increasing Returns to Scale: Output increases more than proportionally.
- Constant Returns to Scale: Output increases in same proportion.
- Decreasing Returns to Scale: Output increases less than proportionally.
12. Distinguish between Economies and Diseconomies of Scale. [5]
- Economies of Scale: Reduction in per unit cost with increase in scale (technical, managerial, financial).
- Diseconomies of Scale: Rise in cost due to over-expansion and inefficiency.
Section D – Application/Case-Based Questions (8 Marks)
13. Case Study:
A firm uses labour and capital to produce goods. Initially, 1 worker produces 10 units. When 2 workers are employed, total output rises to 25 units, and with 3 workers, it becomes 39 units.
a) Calculate the Marginal Product of 2nd and 3rd worker. [2]
MP2 = 25 − 10 = 15
MP3 = 39 − 25 = 14
MP3 = 39 − 25 = 14
b) What does the data indicate about the Law of Diminishing Returns? [3]
The MP decreases from 15 to 14, showing diminishing returns to labour as more units are added.
c) Explain whether this law applies in long run. [3]
No, it applies only in short run because in long run, all factors are variable and the proportion remains constant.