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Production and cost — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsProduction and cost3 Marks
Question
Distinguish between:
  1. Fixed Cost and Variable Cost with examples.
  2. Average Cost and Marginal Cost with examples.
✓

Answer

  1. Difference between Fixed Cost and Variable Cost:
S. No.
Basis
Fixed Cost
Variable Cost
i.
Meaning
It does not change with change in quantity of output.
It changes with change in quantity of output.
ii.
Output
t remains the same whether output is zero or maximum.
It is zero when output is zero. It increases with increase in output and decreases with decrease in output.
iii.
Examples
Rent of building, licence fee, etc.
Cost of raw material, wages of casual labour, etc.
  1. Difference between Average Cost and Marginal Cost:
S. No. Basis Average Cost Marginal Cost
i. Meaning It is per unit cost of output It is the change in Total Cost when more and more additional unit of a commodity is produced.
ii. Formula $\text{AC}=\frac{\text{TC}}{\text{Q}}$ $\text{MC}_{\text{nth}}=\text{TC}_{\text{n}-1}\text{ or }\frac{\Delta\text{TC}}{\Delta\text{Q}}$
iii. Example Production of 10 units is ₹ 70, then AC = 70 ÷ 10 = ₹ 7 For producing, 4 units of a commodity costs ₹ 170 MC = 200 - 170 = ₹ 30.

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