CUET UG Economics Booster Test 2 - Short Run Cost Structure -

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CUET UG Economics Booster Test 2 - Short Run Cost Structure

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Economics Booster Test 2 - Short Run Cost Structure

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QUESTION 1 OF 20

A firm produces 50 units of output and incurs Rs 500 as total cost, out of which Rs 200 is fixed. If the firm decides to increase production to 100 units, what will be the conceptual behavior of the constant production costs?

Answer Review

1 A firm produces 50 units of output and incurs Rs 500 as total cost, out of which Rs 200 is fixed. If the firm decides to increase production to 100 units, what will be the conceptual behavior of the constant production costs?

A The total fixed cost will double to Rs 400.

B The total fixed cost will remain Rs 200.

C The total fixed cost will decrease proportionally.

D The total fixed cost will become zero.

💡 Short Explanation

�� Total Fixed Cost (TFC) does not vary with output. �� Fixed costs are incurred even if output changes. �� Increasing production affects only variable costs.

✅ Correct Answer Explanation

Total Fixed Cost (TFC) refers to the expenditure on fixed factors such as factory rent, permanent machinery, and salaries of permanent staff. These costs remain unchanged throughout the short run regardless of the quantity of output produced. In this question, the firm's TFC is Rs 200 when output is 50 units. Even after output increases to 100 units, the fixed factors remain unchanged. Therefore, the TFC continues to be Rs 200. Option B is correct because TFC is independent of output. Option A is incorrect because TFC does not increase with production. Option C is incorrect because TFC never decreases as output rises. Option D is incorrect because fixed costs exist even if output changes. Hence, Option B is the correct answer according to NCERT.

❓ Why Other Options Are Incorrect

�� Option A → Fixed costs do not double when output doubles.
�� Option C → Fixed costs remain constant and do not decrease proportionally.
�� Option D → Fixed costs are incurred even when production changes.

🎯 Strategy

Used

Elimination

Application:

Eliminate all options suggesting that fixed cost changes with output.

Final Logic:

Since TFC is independent of production level, it remains Rs 200.

🧠 Memory Trick

"Fixed Means Fixed."

📚 Class XI – Introductory Microeconomics – Chapter: Production and Costs – Topic: Total Fixed Cost (Constant Production Costs)

2 Complete the following statement analytically:
Because TFC is independent of the amount of output produced, any change in total cost resulting from a change in output is entirely due to a change in __________.

A average fixed cost

B total variable cost

C factor proportions

D fixed inputs

💡 Short Explanation

�� TFC remains unchanged. �� Only TVC changes when output changes. �� Therefore, changes in TC occur because of TVC.

✅ Correct Answer Explanation

The relationship among the short-run costs is: TC = TFC + TVC Since TFC remains constant, any increase or decrease in Total Cost (TC) is caused only by changes in Total Variable Cost (TVC). Therefore: ΔTC = ΔTVC Option B correctly identifies TVC. Option A is incorrect because AFC changes due to output, not because TC changes. Option C relates to production theory, not cost accounting. Option D is incorrect because fixed inputs remain unchanged. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → AFC is an average, not the source of TC changes.
�� Option C → Factor proportions explain production, not cost changes.
�� Option D → Fixed inputs do not change in the short run.

🎯 Strategy

Used

Substitution

Application:

Use the identity TC = TFC + TVC.

Final Logic:

Since TFC is constant, only TVC changes TC.

🧠 Memory Trick

"Only Variable Cost Varies."

📚 Class XI – Introductory Microeconomics – Chapter: Production and Costs – Topic: Total Cost and Total Variable Cost

3 Complete the following statement:
The input-driven cost (TVC) at any given output level can be calculated as the area under the __________ up to that specific level of output.

A Average Fixed Cost curve

B Short Run Marginal Cost curve

C Total Fixed Cost curve

D Short Run Average Cost curve

💡 Short Explanation

�� Marginal Cost represents additional variable cost. �� Summing marginal costs gives TVC. �� Graphically, TVC equals the area under the SMC curve.

✅ Correct Answer Explanation

Short Run Marginal Cost (SMC) measures the additional cost of producing one more unit of output. When all marginal costs up to a particular output level are added together, they give the Total Variable Cost (TVC). Graphically, this cumulative addition is represented by the area under the SMC curve. Option B correctly represents this relationship. Option A refers to fixed cost per unit. Option C is a constant horizontal line. Option D measures average cost, not cumulative variable cost. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → AFC cannot generate TVC.
�� Option C → TFC remains constant and is unrelated to accumulated variable cost.
�� Option D → SAC is an average, not a cumulative measure.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Identify which curve accumulates additional production costs.

Final Logic:

The area under the SMC curve equals Total Variable Cost.

🧠 Memory Trick

"Sum of MC = TVC."

📚 Class XI – Introductory Microeconomics – Chapter: Production and Costs – Topic: TVC and SMC Relationship

4 Consider the assertion (A) and reason (R) for the zero output cost state.
Assertion (A): At zero output, the firm's Short Run Average Cost (SAC) is exactly equal to its Total Fixed Cost (TFC).
Reason (R): Both AFC and AVC are undefined at zero output level, making SAC undefined rather than equal to TFC.
Select the correct condition:

A Both A and R are true.

B A is true, but R is false.

C A is false, but R is true.

D Both A and R are false.

💡 Short Explanation

�� SAC = TC/q. �� At q = 0, division by zero is impossible. �� Therefore, SAC is undefined.

✅ Correct Answer Explanation

Short Run Average Cost is calculated as: SAC = TC / q At zero output (q = 0), this expression becomes undefined because division by zero is not possible. Similarly, AFC = TFC/q → Undefined AVC = TVC/q → Undefined Therefore: The Assertion is false because SAC is not equal to TFC. The Reason is true because average costs are undefined at zero output. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

�� Option A → Assertion is false.
�� Option B → Reason is actually true.
�� Option D → Reason is correct.

🎯 Strategy

Used

Dimensional/Unit Analysis

Application:

Check whether division by zero is mathematically valid.

Final Logic:

Average costs are undefined when output is zero.

🧠 Memory Trick

"Average Needs Output."

📚 Class XI – Introductory Microeconomics – Chapter: Production and Costs – Topic: SAC at Zero Output

5 Which of the following equations accurately reflects the summation of costs when calculating the change in Total Cost (ΔTC) in the short run?

A ΔTC = ΔTFC + ΔTVC

B ΔTC = ΔTVC (since ΔTFC = 0)

C ΔTC = ΔSAC + ΔSMC

D ΔTC = ΔAFC + ΔAVC

💡 Short Explanation

�� Fixed cost does not change. �� Therefore, ΔTFC = 0. �� Any change in TC equals the change in TVC.

✅ Correct Answer Explanation

The short-run cost identity is: TC = TFC + TVC Taking changes on both sides: ΔTC = ΔTFC + ΔTVC Since Total Fixed Cost remains constant, ΔTFC = 0 Therefore, ΔTC = ΔTVC Thus, Option B is the simplified and correct expression. Option A is the general identity, but in the short run ΔTFC = 0. Option C incorrectly combines average and marginal costs. Option D combines averages rather than total costs. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → True as a general identity, but simplifies because ΔTFC = 0.
�� Option C → SAC and SMC do not determine ΔTC directly.
�� Option D → Average costs do not calculate changes in Total Cost.

🎯 Strategy

Used

Substitution

Application:

Substitute ΔTFC = 0 into the cost identity.

Final Logic:

ΔTC equals ΔTVC because fixed cost never changes.

🧠 Memory Trick

"Fixed Never Changes → ΔTC = ΔTVC."

📚 Class XI – Introductory Microeconomics – Chapter: Production and Costs – Topic: Change in Total Cost

6 Choose the correct statements regarding the Total Cost (TC) base at zero level of output:
I. At zero level of output, the total variable cost is zero.
II. At zero level of output, the total cost is equal to the total fixed cost.
III. At zero level of output, both total cost and total variable cost are undefined.

A I, II, and III

B II and III

C I and III

D I and II

💡 Short Explanation

�� TVC is zero when output is zero. �� TC = TFC + TVC. �� Therefore, TC equals TFC at zero output.

✅ Correct Answer Explanation

In the short run: TC = TFC + TVC When output (q) = 0: No variable inputs are employed. Therefore, TVC = 0. Fixed costs are still incurred. Hence, TC = TFC + 0 = TFC Therefore: Statement I is correct. Statement II is correct. Statement III is incorrect because TC and TVC are well defined at zero output. Hence, Option D is the correct answer.

❓ Why Other Options Are Incorrect

�� Option A → Statement III is false.
�� Option B → Statement III is incorrect because neither TC nor TVC is undefined.
�� Option C → Statement II is also correct, so this option is incomplete.

🎯 Strategy

Used

Option Grouping

Application:

Evaluate each statement separately and eliminate options containing the false statement.

Final Logic:

Only Statements I and II are correct.

🧠 Memory Trick

"Zero Output → TVC = 0 → TC = TFC."

📚 Class XI – Introductory Microeconomics – Chapter: Production and Costs – Topic: Total Cost at Zero Output

7 Match the cost components in List-I with their corresponding formulas in List-II.

List I	List II
I. Short Run Average Cost (SAC)	1. TVC / q
II. Average Variable Cost (AVC)	2. TFC / q
III. Average Fixed Cost (AFC)	3. TC / q

A I-3, II-1, III-2

B I-1, II-2, III-3

C I-2, II-3, III-1

D I-3, II-2, III-1

💡 Short Explanation

�� SAC = TC/q. �� AVC = TVC/q. �� AFC = TFC/q.

✅ Correct Answer Explanation

The standard short-run cost formulas are: SAC = TC ÷ q AVC = TVC ÷ q AFC = TFC ÷ q Thus, I → 3 II → 1 III → 2 Hence Option A correctly matches every formula.

❓ Why Other Options Are Incorrect

�� Option B → Interchanges SAC and AVC incorrectly.
�� Option C → Matches AFC and SAC wrongly.
�� Option D → Incorrectly assigns AVC.

🎯 Strategy

Used

Substitution

Application:

Recall each cost formula and substitute directly.

Final Logic:

Only Option A matches all three formulas correctly.

🧠 Memory Trick

(SAC→TC, AVC→TVC, AFC→TFC)

📚 Class XI – Introductory Microeconomics – Chapter: Production and Costs – Topic: Average Cost Formulae

8 Complete the following statement:
Because total fixed cost is a constant, the Average Fixed Cost (AFC) curve is graphically represented as a __________.

A positively sloped straight line

B horizontal straight line

C rectangular hyperbola

D U-shaped curve

💡 Short Explanation

�� AFC = TFC/q. �� TFC is constant. �� AFC continuously declines as output increases.

✅ Correct Answer Explanation

Average Fixed Cost is calculated as: AFC = TFC / q Since TFC remains constant, increasing output continuously reduces AFC. Graphically, this creates a rectangular hyperbola, which falls continuously but never touches either axis. Option C correctly identifies the curve. Option A is incorrect because AFC is downward, not upward sloping. Option B represents the TFC curve. Option D represents AVC or SAC, not AFC. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

�� Option A → AFC never rises.
�� Option B → Horizontal line represents TFC, not AFC.
�� Option D → AFC is never U-shaped.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Associate the known geometric shape with AFC.

Final Logic:

Constant numerator divided by increasing denominator forms a rectangular hyperbola.

🧠 Memory Trick

"Fixed ÷ More Output = Hyperbola."

📚 Class XI – Introductory Microeconomics – Chapter: Production and Costs – Topic: Average Fixed Cost Curve

9 Arrange the following steps in the correct logical sequence to compute the Average Variable Cost (AVC) per unit of output:
I. Determine the total variable cost (TVC) for the given output.
II. Divide the TVC by the number of units of output (q).
III. Identify the quantity of output produced (q).

A I, II, III

B III, I, II

C II, I, III

D I, III, II

💡 Short Explanation

�� Identify output. �� Find corresponding TVC. �� Divide TVC by output.

✅ Correct Answer Explanation

The formula is: AVC = TVC / q The logical order is: 1. Identify the output level (q). 2. Find the corresponding TVC. 3. Divide TVC by q. Thus, III → I → II Hence Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → Output should be identified before calculation.
�� Option C → Division cannot be done before determining TVC.
�� Option D → Output must be identified first.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Arrange the procedural steps logically.

Final Logic:

Identify quantity → obtain TVC → compute AVC.

🧠 Memory Trick

"Output → TVC → Divide."

📚 Class XI – Introductory Microeconomics – Chapter: Production and Costs – Topic: Average Variable Cost

10 Match the marginal relationships in List-I with their resulting average behaviors in List-II.

List I	List II
1. SMC falls because MP initially increases	a. AVC starts rising once SMC becomes greater than AVC
2. SMC rises because MP eventually decreases	b. AVC continues to fall if SMC is less than AVC
3. SMC cuts AVC	c. AVC is at its minimum point
4. MP and SMC	d. Inversely related

A 1-b, 2-b, 3-c, 4-d

B 1-a, 2-b, 3-c, 4-d

C 1-b, 2-a, 3-c, 4-d

D 1-a, 2-a, 3-d, 4-c

💡 Short Explanation

�� Rising MP lowers SMC. �� Falling SMC keeps AVC falling. �� Higher SMC makes AVC rise.

✅ Correct Answer Explanation

According to NCERT, Marginal Product (MP) and Short Run Marginal Cost (SMC) are inversely related. 1 → b Initially, Marginal Product (MP) rises. Therefore, Short Run Marginal Cost (SMC) falls. When SMC is less than AVC, it pulls AVC downward. Therefore, 1 → b. 2 → a Later, Marginal Product begins to fall because of diminishing marginal returns. Consequently, SMC rises. Once SMC becomes greater than AVC, AVC starts rising. Therefore, 2 → a. 3 → c The SMC curve intersects the AVC curve at the minimum point of AVC. Therefore, 3 → c. 4 → d Marginal Product and Marginal Cost are inversely related. As MP rises, SMC falls, and as MP falls, SMC rises. Therefore, 4 → d. Thus, the correct matching is: 1 → b 2 → a 3 → c 4 → d Hence, Option C is correct.

❓ Why Other Options Are Incorrect

�� Option A → Incorrect because it ignores the stage where SMC exceeds AVC and AVC begins to rise.
�� Option B → Incorrect because the relationships between falling and rising SMC are interchanged.
�� Option D → Incorrect because SMC below AVC cannot make AVC rise, and the remaining matches are also incorrect.

🎯 Strategy

Used

Option Grouping

Application:

Use the NCERT rule that marginal values pull average values and the inverse relationship between MP and SMC.

Final Logic:

SMC < AVC → AVC Falls
SMC > AVC → AVC Rises
SMC Cuts AVC → Minimum AVC
MP ↑ → SMC ↓

🧠 Memory Trick

Marginal Pulls Average

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Relationship between Short Run Marginal Cost (SMC), Average Variable Cost (AVC), and Marginal Product (MP)

11 Match the phases of the SAC curve in List-I with the relative magnitudes of its components in List-II.

List I	List II
1. SAC initially falls	a. The rise in AVC becomes larger than the fall in AFC
2. SAC eventually rises	b. The fall in AFC is greater than the rise in AVC
3. Minimum point of SAC	c. Rise in AVC equals the fall in AFC
4. Short Run Average Cost (SAC)	d. Sum of AFC and AVC

A 1-b, 2-a, 3-c, 4-d

B 1-a, 2-b, 3-d, 4-c

C 1-a, 2-a, 3-c, 4-d

D 1-b, 2-b, 3-d, 4-c

💡 Short Explanation

�� SAC is the sum of AFC and AVC. �� Initially, the fall in AFC dominates the rise in AVC. �� Later, the rise in AVC exceeds the fall in AFC, causing SAC to rise.

✅ Correct Answer Explanation

According to NCERT, Short Run Average Cost (SAC) is given by SAC = AFC + AVC. 1 → b Initially, as output increases, Average Fixed Cost (AFC) falls rapidly, while Average Variable Cost (AVC) rises slowly. Since the fall in AFC is greater than the rise in AVC, SAC continues to fall. Therefore, 1 → b. 2 → a As output increases further, AVC rises rapidly because of the Law of Variable Proportions. When the rise in AVC becomes greater than the fall in AFC, SAC begins to rise. Therefore, 2 → a. 3 → c At the minimum point of the SAC curve, the increase in AVC exactly equals the decrease in AFC. Therefore, 3 → c. 4 → d Short Run Average Cost is the sum of Average Fixed Cost and Average Variable Cost. Therefore, 4 → d. Thus, the correct matching is: 1 → b 2 → a 3 → c 4 → d Hence, Option A is correct.

❓ Why Other Options Are Incorrect

�� Option B → Incorrect because it reverses the conditions responsible for the falling and rising phases of the SAC curve.
�� Option C → Incorrect because SAC cannot both fall and rise under the same condition.
�� Option D → Incorrect because both phases are matched with opposite conditions, and the remaining matches are incorrect.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Recall the relationship
SAC = AFC + AVC
and compare how AFC and AVC behave as output increases.

Final Logic:

Fall in AFC > Rise in AVC → SAC Falls
Rise in AVC > Fall in AFC → SAC Rises
Rise in AVC = Fall in AFC → Minimum SAC

🧠 Memory Trick

AVC Wins → SAC Rises

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Behaviour of the Short Run Average Cost (SAC) Curve and Relationship between AFC and AVC

12 Given the equation SAC = AFC + AVC, select the correct logical condition regarding their minimum points:

A The minimum point of the SAC curve lies exactly at the same output level as the minimum point of the AVC curve.

B The minimum point of the SAC curve lies to the left of the minimum point of the AVC curve.

C The minimum point of the SAC curve lies to the right of the minimum point of the AVC curve.

D The minimum point of the SAC curve is completely independent of the AVC curve.

💡 Short Explanation

�� SAC consists of both AFC and AVC. �� AFC continues to decline as output increases. �� Therefore, SAC reaches its minimum after AVC.

✅ Correct Answer Explanation

The Short Run Average Cost (SAC) is given by: SAC = AFC + AVC Since Average Fixed Cost (AFC) continuously falls as output increases, it keeps pulling the SAC curve downward even after the Average Variable Cost (AVC) has reached its minimum point and started rising. As a result: AVC reaches its minimum first. SAC reaches its minimum later, at a higher level of output. Therefore, the minimum point of the SAC curve lies to the right of the minimum point of the AVC curve. Hence, Option C is correct. Option A is incorrect because SAC and AVC do not attain their minimum points at the same output level. Option B is incorrect because SAC does not attain its minimum before AVC. Option D is incorrect because SAC directly depends on AVC through the relationship SAC = AFC + AVC.

❓ Why Other Options Are Incorrect

�� Option A → SAC reaches its minimum after AVC because AFC continues to decline.
�� Option B → The minimum point of SAC cannot occur before the minimum point of AVC.
�� Option D → SAC is directly related to AVC and therefore is not independent of it.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Use the relationship SAC = AFC + AVC and recall the behaviour of the AFC and AVC curves as output increases.

Final Logic:

Since AFC keeps falling, SAC continues decreasing even after AVC reaches its minimum. Therefore, SAC attains its minimum at a higher output level than AVC.

🧠 Memory Trick

"Falling AFC Delays SAC Minimum."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Relationship between SAC, AFC and AVC (Short Run Cost Curves)

13 Complete the analytical statement:
Just like the marginal product is undefined at zero level of input employment, the Short Run Marginal Cost (SMC) is __________ at zero level of output.

A equal to fixed cost

B zero

C undefined

D equal to average variable cost

💡 Short Explanation

�� SMC measures the additional cost of producing one more unit. �� At zero output, there is no previous unit for comparison. �� Hence, SMC is undefined at zero output.

✅ Correct Answer Explanation

Short Run Marginal Cost (SMC) measures the change in Total Cost resulting from producing one additional unit of output. Formula: SMC = Change in TC / Change in Output At zero output, there is no previous level of production from which a change can be measured. Therefore, the marginal cost of producing the "0th" unit is undefined. This is analogous to Marginal Product, which is also undefined when no input is employed. Therefore: Option C is correct. Option A is incorrect because SMC is not equal to fixed cost. Option B is incorrect because SMC is not zero at zero output. Option D is incorrect because AVC is also undefined at zero output and is conceptually different from SMC.

❓ Why Other Options Are Incorrect

�� Option A → Fixed Cost is a total cost concept and does not define marginal cost.
�� Option B → SMC cannot be zero because it cannot be calculated at zero output.
�� Option D → SMC and AVC are different cost concepts.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Relate SMC to the NCERT explanation that marginal values are undefined at the zero level because no additional unit exists.

Final Logic:

Since there is no previous output level at zero production, SMC is undefined.

🧠 Memory Trick

"No Output → No Marginal Cost."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Short Run Marginal Cost (SMC)

14 Choose the correct statements regarding the link between SMC and incremental cost change:
I. Whatever change occurs to total cost when output changes is entirely due to the change in TVC.
II. SMC is the increase in Total Fixed Cost due to the production of an extra unit of output.
III. SMC measures the additional cost a firm incurs to produce one extra unit of output.

A I and II

B I and III

C II and III

D I, II, and III

💡 Short Explanation

�� TFC remains constant in the short run. �� Only TVC changes with output. �� SMC measures the additional cost of one extra unit.

✅ Correct Answer Explanation

In the short run, TC = TFC + TVC Since Total Fixed Cost (TFC) remains constant, any change in Total Cost occurs only because Total Variable Cost (TVC) changes. Therefore: Statement I is correct. Statement III is also correct because SMC measures the extra cost of producing one additional unit of output. Statement II is incorrect because TFC never increases in the short run. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → Statement II is incorrect because fixed cost does not change.
�� Option C → Statement II is false.
�� Option D → Includes the incorrect Statement II.

🎯 Strategy

Used

Option Grouping

Application:

Evaluate each statement independently using the concepts of TFC, TVC and SMC.

Final Logic:

Only Statements I and III are correct.

🧠 Memory Trick

"Fixed Doesn't Change; Variable Creates MC."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Relationship between SMC and TVC

15 Arrange the sequence of phenomena that cause the SMC curve to be U-shaped according to the law of variable proportions:
I. To produce an extra unit of output, the requirement of the factor becomes greater, causing SMC to rise.
II. The marginal product of a factor increases as employment increases initially.
III. The marginal product of the factor decreases after a certain point.
IV. To produce an extra unit of output, the requirement of the factor becomes less, causing SMC to fall initially.

A II, IV, III, I

B II, III, IV, I

C IV, II, I, III

D III, I, II, IV

💡 Short Explanation

�� Marginal Product initially increases. �� Less input is needed for each additional unit, reducing SMC. �� Later, Marginal Product decreases and SMC rises.

✅ Correct Answer Explanation

The U-shaped SMC curve is explained by the Law of Variable Proportions. The correct sequence is: 1. Marginal Product initially increases as more units of the variable factor are employed. (Statement II) 2. Because each additional unit of output requires less of the variable factor, SMC falls. (Statement IV) 3. After a certain stage, Marginal Product starts decreasing due to diminishing returns. (Statement III) 4. Now more of the variable factor is needed to produce each extra unit, causing SMC to rise. (Statement I) Thus, the correct order is: II → IV → III → I Hence, Option A is correct.

❓ Why Other Options Are Incorrect

�� Option B → Places the fall in marginal product before the fall in SMC, disrupting the correct sequence.
�� Option C → Begins with SMC behaviour before explaining the rise in marginal product.
�� Option D → Starts with diminishing returns instead of increasing marginal product.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Arrange the statements according to the NCERT explanation of the Law of Variable Proportions and the resulting U-shaped SMC curve.

Final Logic:

Increasing Marginal Product lowers SMC initially; diminishing Marginal Product raises SMC later.

🧠 Memory Trick

"MP Up → MC Down; MP Down → MC Up."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: U-shaped Short Run Marginal Cost Curve and Law of Variable Proportions

16 Match the geometric calculation methods in List-I with the corresponding cost metric in List-II.

List I	List II
I. Area of rectangle OFCq₁ under the AFC curve	1. Total Variable Cost (TVC)
II. Area of rectangle OVBq₀ under the AVC curve	2. Total Fixed Cost (TFC)
III. Area under the SMC curve up to a given output	3. Total Cost (TC)
IV. Sum of the areas representing TFC and TVC	4. Total Cost (TC) obtained by adding TFC and TVC

A I-2, II-1, III-3, IV-4

B I-1, II-2, III-4, IV-3

C I-2, II-3, III-1, IV-4

D I-3, II-1, III-2, IV-4

💡 Short Explanation

�� Area under the AFC rectangle gives Total Fixed Cost. �� Area under the AVC rectangle gives Total Variable Cost. �� The area under the SMC curve represents Total Cost (up to a given level of output). �� Total Cost equals the sum of Total Fixed Cost and Total Variable Cost.

✅ Correct Answer Explanation

According to the geometric interpretation of cost curves in NCERT: • The area of rectangle OFCq₁ under the AFC curve equals: AFC × Output = Total Fixed Cost (TFC). Therefore, I → 2 • The area of rectangle OVBq₀ under the AVC curve equals: AVC × Output = Total Variable Cost (TVC). Therefore, II → 1 • The area under the SMC curve up to a given level of output represents the Total Cost incurred in producing that output. Therefore, III → 3 • Total Cost is obtained by adding Total Fixed Cost and Total Variable Cost. Therefore, IV → 4 Hence, the correct matching is: • I → 2 • II → 1 • III → 3 • IV → 4 Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

�� Option B → Incorrectly interchanges AFC and AVC rectangles and misidentifies Total Cost relationships.
�� Option C → Incorrectly matches the AVC rectangle with Total Cost and the SMC area with TVC.
�� Option D → Incorrectly identifies the AFC rectangle and the SMC area.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Recall the geometric interpretation of AFC, AVC, SMC, and Total Cost from the NCERT diagrams.

Final Logic:

AFC Area → TFC
AVC Area → TVC
SMC Area → TC
TFC + TVC → TC

🧠 Memory Trick

SMC Area = Total Cost

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Geometric Interpretation of AFC, AVC, SMC and Total Cost Curves

17 Arrange the relationship phases between SMC and SAC in logical sequence as production increases from zero:
I. SAC is falling and SMC is less than SAC.
II. SMC cuts the SAC curve from below at its minimum point.
III. SAC is rising and SMC is greater than SAC.

A II, I, III

B I, II, III

C I, III, II

D III, II, I

💡 Short Explanation

�� Initially SMC is below SAC. �� SMC cuts SAC at its minimum point. �� Afterwards SMC exceeds SAC.

✅ Correct Answer Explanation

The relationship between Short Run Marginal Cost (SMC) and Short Run Average Cost (SAC) follows the standard marginal-average rule. Initially, SMC < SAC, so SAC keeps falling. (Statement I) As production increases, SMC cuts the SAC curve from below exactly at the minimum point of SAC. (Statement II) Beyond that point, SMC > SAC, causing SAC to rise. (Statement III) Therefore the correct sequence is: I → II → III Hence, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → Begins with the intersection before SAC starts falling.
�� Option C → Places the rising phase before the intersection.
�� Option D → Starts with the final stage instead of the initial stage.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Arrange the stages according to the standard relationship between marginal and average cost curves.

Final Logic:

SMC stays below SAC, cuts it at the minimum point, and then remains above it.

🧠 Memory Trick

"Below → Touch → Above."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Relationship between SMC and SAC

18 Choose the correct statements regarding how SMC influences the averages (AVC and SAC):
I. For the first unit of output, SMC and AVC are the same.
II. As long as the value of SMC remains less than the prevailing value of AVC, AVC continues to fall.
III. SMC pulls SAC downward only when SMC is strictly equal to AVC.

A I, II, and III

B II and III

C I and III

D I and II

💡 Short Explanation

�� For the first unit, SMC equals AVC. �� AVC falls while SMC remains below it. �� Equality occurs only at AVC's minimum point.

✅ Correct Answer Explanation

For the first unit of output, Total Variable Cost equals Marginal Cost, so: SMC = AVC Thus, Statement I is correct. Whenever SMC remains below AVC, each additional unit costs less than the existing average, causing AVC to continue falling. Thus, Statement II is also correct. Statement III is incorrect because SMC pulls SAC downward whenever SMC is less than SAC, not only when they are equal. Equality occurs only at the minimum point of SAC. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

�� Option A → Includes the incorrect Statement III.
�� Option B → Statement III is false.
�� Option C → Statement III is incorrect.

🎯 Strategy

Used

Option Grouping

Application:

Evaluate each statement independently using the marginal-average relationship.

Final Logic:

Only Statements I and II are correct.

🧠 Memory Trick

"MC Below → Average Falls; MC Equal → Minimum."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Relationship of SMC with AVC and SAC

📄 Passage

In Table 3.3, it is shown that at q = 4, the TC is Rs 49, and at q = 5, the TC is Rs 53. The short run marginal cost (SMC) is calculated as the change in total cost per unit of change in output. Thus at q = 5, the change in TC is (53) − (49) = 4, and the change in q is 1, yielding an SMC of 4. Average variable cost at some level of output is the average of all marginal costs up to that level.

Table 3.3: Cost Function of a Typical Firm
Using the sequential computation logic in the passage, if TC at q = 6 is Rs 59 and TC at q = 5 is Rs 53, what is the SMC at q = 6?

A Rs 4

B Rs 5

C Rs 6

D Rs 10

💡 Short Explanation

�� SMC measures change in Total Cost. �� Compute the difference in TC. �� Divide by change in output.

✅ Correct Answer Explanation

Formula: SMC = Change in TC / Change in Output Given: TC at q = 6 = Rs 59 TC at q = 5 = Rs 53 Change in TC = 59 − 53 = 6 Change in output = 1 Therefore, SMC = 6 / 1 = Rs 6 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

�� Option A → Incorrect difference in TC.
�� Option B → Arithmetic error.
�� Option D → Does not follow the SMC formula.

🎯 Strategy

Used

Substitution

Application:

Substitute the numerical values into the SMC formula.

Final Logic:

59 − 53 = 6, therefore SMC = Rs 6.

🧠 Memory Trick

"MC = Next TC − Previous TC."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Short Run Marginal Cost Calculation Using Cost Table

📄 Passage

Table 3.3: Cost Function of a Typical Firm
Based on the numerical cost schedules and principles in the passage, how can the Total Variable Cost (TVC) at q = 5 be computed using the SMC values?

A By multiplying the SMC at q = 5 by 5.

B By summing all SMC values up to q = 5.

C By dividing the TC at q = 5 by 5.

D By subtracting SMC at q = 5 from TC at q = 5.

💡 Short Explanation

�� TVC accumulates marginal costs. �� Sum each unit's SMC. �� The cumulative sum equals TVC.

✅ Correct Answer Explanation

Short Run Marginal Cost (SMC) measures the additional cost of producing one extra unit of output. Therefore, the Total Variable Cost (TVC) at any output level is obtained by adding the marginal costs of all units produced up to that level. Thus, at q = 5, TVC equals the cumulative sum of SMC values from the first to the fifth unit. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → Multiplying one SMC value by output does not give TVC.
�� Option C → Dividing TC by output gives Average Cost, not TVC.
�� Option D → Subtracting SMC from TC has no economic meaning for calculating TVC.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Apply the NCERT relationship between cumulative marginal cost and total variable cost.

Final Logic:

Adding all marginal costs up to a given output gives Total Variable Cost.

🧠 Memory Trick

"Add MCs = TVC."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Relationship between Short Run Marginal Cost and Total Variable Cost

CUET UG Economics Booster Test 2 - Short Run Cost Structure

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