NCERT Class 12 Economics Chapter 4 The Theory of the firm Under Perfect Competition Extra Questions and Answers
Class 12 Economics Chapter 4 Extra Inside Questions and Answers – The Theory of the firm Under Perfect Competition. Here in this Page Class XII Students can Learn Extra Questions & Answer 4th Chapter Economics fully Inside.
We Provided Here The Theory of the firm Under Perfect Competition Economics Chapter 4 Long Answer Type Question, MCQ Questions & Answer, Short Answer Type Questions (2 or 3 marks), and Very Short answer Type Question (1 marks) Solution.
Class 12 Economics Chapter 4 Inside based Question
1.) Draw total Revenue curve and explain what we can observed from total Revenue curve of a firm.
Ans -A total revenue curve plots the quantity sold or output on the X-axis and the Revenue earned on the Y-axis. Three observations are relevant here.
i.) First, when the output is zero, the total revenue of the firm is also zero. Therefore, the TR curve passes through point O.
ii.) Second, the total revenue increases as the output goes up. Moreover, the equation ‘TR = p × q’ is that of a straight line because p is constant. This means that the TR curve is an upward rising straight line.
iii.) Third, consider the slope of this straight line. When the output is one unit the total revenue is p × 1 = p. Therefore, the slope of the straight line is Aq1/Oq1 = p.
2.) Define total revenue, average revenue, marginal revenue in perfect competition market.
Ans –
i.) Total revenue- The total revenue (TR) ofthe firm is defined as the market price of the good multiplied by the firm’soutput.
ii.) Average revenue-The average revenue ( AR ) ofa firm is defined as total revenueper unit of output.
iii.) Marginal revenue – The marginal revenue (MR) of a firm is defined as the increase in total
revenue for a unit increase in the firm’s output.
3.) Why profit to be maximum , marginal cost is equal to marginal cost (MR = MC).
Ans – Profit are the difference between total revenue and total cost. Both total revenue and total cost increase as output increases. Notice that as long as the change in total revenue is greater than the change in total cost, profits will continue to increase. The change in total revenue per unit increase in output is the marginal revenue and the change in total cost per unit increase in output is the marginal cost. Therefore, we can conclude that as long as marginal revenue is greater than marginal cost, profits are increasing. By the same logic, as long as marginal revenue is less than marginal cost, profits will fall. It follows that for profits to be maximum, marginal revenue should equal marginal cost.
5.) For maximum the profit which condition must be satisfied .
Ans – For profits to be maximum, three conditions must hold at q0:
- The price, p, must equal MC
- Marginal cost must be non-decreasing at q0
- For the firm to continue to produce, in the short run, price must be greaterthan the average variable cost (p > AVC); in the long run, price must be greaterthan the average cost (p > AC).
6.) What is mean by The Shut Down Point
Ans -As per the supply curve, that in the shortrun the firm continues to produce as long as the price remains greater than orequal to the minimum of AVC. Therefore, along the supply curve as we movedown, the last price-output combination at which the firm produces positiveoutput is the point of minimum AVC where the SMC curve cuts the AVC curve.Below this, there will be no production. This point is called the short run shutdown point of the firm. In the long run, however, the shut down point is the minimum of LRAC curve.
7.) What is mean by normal profit, Super normal profit and break even point ?
Ans -The minimum level of profit that is needed to keep a firm in the existing business is defined as normal profit. A firm that does not make normal profits is notgoing to continue in business. Normal profits are therefore a part of the firm’stotal costs. It may be useful to think of them as an opportunity cost forentrepreneurship. Profit that a firm earns over and above the normal profit iscalled the super-normal profit. In the long run, a firm does not produce if itearns anything less than the normal profit. In the short run, however, it mayproduce even if the profit is less than this level. The point on the supply curve at which a firm earns only normal profit is called the break-even point of the firm.
8.) What is supply , supply schedule , supply curve and market supply curve ?
Ans – Firm’s ‘supply’ is the quantity that it chooses to sell at a given price, given technology, and given the prices of factors of production. A table describing the quantities sold by a firm at various prices, technology and prices of factors remaining unchanged, is called a supply schedule. We may also represent the information as a graph, called a supply curve. The supply curve of a firm shows the levels of output (plotted on the x-axis) that the firm chooses to produce corresponding to different values of the market price (plotted on the y-axis),again keeping technology and prices of factors of production constant. The market supply curve shows the output levels (plotted on the x-axis) that firms in the market produce in aggregate corresponding to different values of the market price (plotted on the y-axis).
For more ⇓
For more updates, follow our page ⇒ Net Explanations