4 Marks Question - Economics STD 11 Commerce Questions - Vidyadip

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Question 14 Marks

From the following information about a firm, find the firm's equilibrium output in terms of marginal cost and marginal revenue. Give reasons. Also find profit at this output.

Output (Units)	Total Revenue (₹)	Total Cost (₹)
1	6	7
2	12	13
3	18	17
4	24	23
5	30	31

Answer

Output (Units)	Total Revenue (₹)	Marginal Revenue (₹)	Total Cost (₹)	Marginal Cost (₹)
1	6	6	7	7
2	12	6	13	6
3	18	6	17	4
4	24	6	23	6
5	30	6	31	8

In the above table, MR = MC in two situations: (i) when 2 units of output are produced, and
(ii) when 4 units of output are produced. However, in situation 1, when output is 2 units, MC is falling whereas in situation 2, when output is 4 units, MC is rising. A producer strikes equilibrium when two conditions are satisfied:
(i) MR=MC, and (ii) MC is rising.
This means that the equilibrium will be struck when 4 units of output are produced and not wher 2 units of output are produced.
When 4 units of output are produced,
TR = ₹ 24 and TC = ₹ 23
Profit TR -TC
Profit = ₹ 24 - ₹ 23
= ₹ 1
The producer is earning supernormal profit of ₹ 1 at the point of equilibrium.

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Question 24 Marks

From the following information about a firm, find the firm's equilibrium output in terms of marginal cost and marginal revenue. Give reasons. Also find profit at this output.

Output (Units)	Total Revenue (₹)	Total Cost (₹)
1	7	8
2	14	15
3	21	21
4	28	28
5	35	36

Answer

Output (Units)	Total Revenue (₹)	Marginal Revenue (₹)	Total Cost (₹)	Marginal Cost (₹)
1	7	7	8	8
2	14	7	15	7
3	21	7	21	6
4	28	7	28	7
5	35	7	36	8

In the above table, MR=MC in two situations: (i) when 2 units of output are produced, and (ii) when 4 units of output are produced. However, in situation 1, when output is 2 units, MC is falling, whereas in situation 2, when output is 4 units, MC is rising. A producer strikes equilibrium when two conditions are satisfied:
(i) MR MC, and (ii) MC is rising.
This means that the equilibrium will be struck when 4 units of output are produced and not when 2 units of output are produced.
When 4 units of output are produced,
TR=₹ 28 and TC = ₹ 28
Profit = TR - TC
Profit = ₹ 28 - ₹ 28
= 0
The producer is earning only normal profits at the point of equilibrium. Normal profits are a part of TC.

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Question 34 Marks

From the following total cost and total revenue schedule of a firm, find out the level of output, using marginal cost and marginal revenue approach, at which the firm would be in equilibrium. Give reasons for your answer.

Output (Units)	Total Revenue (₹)	Total Cost (₹)
1	10	8
2	18	15
3	24	21
4	28	25
5	30	33

Answer

Output (Units)	Total Revenue (₹)	Total Cost (₹)	Marginal Revenue (₹)	Marginal Cost (₹)
1	10	8	10	8
2	18	15	8	7
3	24	21	6	6
4	28	25	4	4
5	30	33	2	6

Producer is in equilibrium at 4th unit of output.
A producer strikes equilibrium when two conditions are satisfied:
(i) MR=MC, and
(ii) MC is rising from the point of equilibrium (so that MC is greater than MR beyond the equilibrium output).
Condition 1 is satisfied in two situations: (i) when 3 units of output are produced, and (ii) when 4 units of output are produced. But situation (1) does not satisfy condition 2 (that MC should be rising from the point of equilibrium). However, both the conditions of equilibrium are satisfied in situation (2). Hence, equilibrium is struck when 4 units of output are produced.
The firm is in equilibrium when 4 units of output are produced.

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Question 44 Marks

Given below is the cost schedule of a product produced by a firm. The market price per unit of the product at all levels of output is ₹ 12. Using marginal cost and marginal revenue approach, find out the level of equilibrium output. Give reasons for your answer:

Output (Units)	1	2	3	4	5	6
Average Cost (₹)	12	11	10	10	10.4	11

Answer

Output (Units)	Average Cost (₹)	Total Cost (₹)	Marginal Revenue = Average Revenue (₹)	Marginal Cost (₹)
1	12	12	12	12
2	11	22	12	10
3	10	30	12	8
4	10	40	12	10
5	10.4	52	12	12
6	11	66	12	14

Producer is in equilibrium at 5th unit of output.
Reason: At output levels Ist and 5th unit, MR and MC are equal which is 12 in this case. But the producer is in equilibrium at 5th unit only where MR = MC (12) and MC is rising.
The level of equilibrium output is 5 th unit.

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Question 54 Marks

From the table given below, determine the level of output at which the producer is in equilibrium. Use the marginal revenue and marginal cost approach. Given reasons for your answer.

Quantity Sold (Units)	Price (₹)	Total Cost (₹)
1	5	7
2	5	12
3	5	16
4	5	18
5	5	23

Answer

Output (Units)	TR (₹)	Total Revenue (TR) (₹)	Total Cost (TC ) (₹)	Marginal Revenue (MR) (₹)	Marginal Cost (MC) (₹)	Profit (₹) (π=TR-TC)
1	5	5	7	5	7	- 2
2	5	10	12	5	5	- 2
3	5	15	16	5	4	- 1
4	5	20	18	5	2	2
5	5	25	23	5	5	2

Producer's equilibrium is struck when output level is 5 units.
Reason: At output levels 2nd and 5th units, both MR and MC are equal, which is equal to 5 in both the cases. But the producer is in equilibrium at 5th unit only where profit is maximum (= 2).
The producer is in equilibrium when the level of output =5 units.

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Question 64 Marks

With the help of the table given below, find producer's equilibrium using MR and MC approach. Give reason for your answer.

Quantity Sold (Units)	TR (₹)	AC (₹)
1	20	20
2	40	15
3	60	12
4	80	10
5	100	12
6	120	15

Answer

Output (Units)	TR (₹)	MR (₹)	AC (₹)	TC (₹)	MC (₹)	Profit (2) (π = TR - TC)
1	20	20	20	20	20	0
2	40	20	15	30	10	10
3	60	20	12	36	6	24
4	80	20	10	40	4	40
5	100	20	12	60	20	40
6	120	20	15	90	30	30

Producer's equilibrium is struck when output level = 5 units.
Reason: At output levels 1st and 5th units, both MR and MC are equal, which is equal to 20 in both the cases. But producer is in equilibrium at 5th unit only where profit is maximum (= 40).
The producer is in equilibrium when the level of output =5 units.

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Question 74 Marks

Find producer's equilibrium, from the following. Give logical reason.

Quantity Sold (Units)	Total Revenue (₹)	Total Cost (TC) (₹)
5	15	18
6	20	22
7	25	26
8	30	27
9	35	32
10	40	38

Answer

Quantity Sold (Units)	Total Revenue (TR) (₹)	Total Cost (TC) (₹)	Marginal Revenue (MR) (₹)	Marginal Cost (MC) (₹)	Profit (π = TR - TC) (₹)
5	15	18	-	-	- 3
6	20	22	5	4	- 2
7	25	26	5	4	- 1
8	30	27	5	1	3
9	35	32	5	5	3
10	40	38	5	6	2

Producer is in equilibrium at 9th unit of output.
Reason: At output levels 8th and 9th unit, the difference between TR and TC, ie., profit is maximum, which is equal to 3 in both the cases. But the producer is in equilibrium at 9th unit only where MR= MC (=5), and MC is rising.
Producer's equilibrium is struck when output level is 9 units.

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Question 84 Marks

Find the profit maximising level of output.

Quantity Sold ( Units )	Total Revenue ( ₹ )	Marginal Cost (₹)
1	12	15
2	26	9
3	34	6
4	40	2
5	42	3

Answer

Quantity Sold ( Units )	Total Revenue ( ₹ )	Marginal Cost ( ₹ )	Total Cost ( ₹ )	Profit (π = TR - TC) (₹)
1	12	15	15	- 3
2	26	9	24	2
3	34	6	30	4
4	40	2	32	8
5	42	3	35	7

Profit is maximised when the output level is 4 units because here, profit is maximum, ie., 8 and after this starts declining.
Profit is maximum at 4 th unit.

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Question 94 Marks

Quantity Sold ( Units )	Price ( ₹ per unit )	Average Cost (₹)
1	15	15
2	16	12
3	17	10
4	18	12
5	19	14

Answer

Quantity Sold ( Units )	Price ( ₹ per unit )	AC (₹)	TR (₹)	TC (₹)	Profit (π = TR - TC) (₹)
1	15	15	15	15	0
2	16	12	32	24	8
3	17	10	51	30	21
4	18	12	72	48	24
5	19	14	95	70	25

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Question 104 Marks

What should the firm's profit, when average variable cost is ₹ 20 per unit, average fixed cost is ₹ 10 per unit, price of the output is ₹ 25 per unit and only 8 units of the output are produced?

Answer

AVC=₹ 20; AFC= ₹ 10; Price = ₹ 25 and Output = 8 units
TVC = AVC x Output
= ₹ 20 x 8
=₹ 160
TFC = AFC x Output
= ₹ 10 ×₹ 8
= ₹ 80
TC = TFC+ TVC
= ₹ 80 + ₹ 160
=₹ 240
TR = Price Output
=₹ 25 × 8
=₹ 200
Profit=TR - TC
= ₹ 200-₹ 240
= (-) ₹ 40
In this case, firm is incurring loss of ₹ 40 because TC > TR.
profit=(-) ₹ 40 (loss).

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Question 114 Marks

Explain what happens to the profits if output level is below the equilibrium level.

Answer

SELF

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Question 124 Marks

Explain what happens to the profits if output level is beyond the equilibrium level.

Answer

SELF

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Question 134 Marks

Explain the conditions leading to maximisation of profits by a producer. Use marginal cost and marginal revenue approach.

Answer

SELF

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Question 144 Marks

What is meant by producer's equilibrium? What are its main conditions?

Answer

SELF

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Question 154 Marks

Explain producer's equilibrium with the help of a table.

Answer

SELF

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Question 164 Marks

The following table shows the total cost schedule of a competitive firm. It is given that the price of the good is ₹ 10. Calculate the profit at each output level. Find the profit maximising level of output.

Quantity Sold	0	1	2	3	4	5	6	7	8	9	10
TC (₹)	5	15	22	27	31	38	49	63	81	101	123

Answer

Quantity Sold	TC (₹)	Price (₹)	TR (₹)	Profit (=TR-TC) (₹)
0	5	10	0	- 5
1	15	10	10	- 5
2	22	10	20	- 2
3	27	10	30	3
4	31	10	40	9
5	38	10	50	12
6	49	10	60	11
7	63	10	70	7
8	81	10	80	- 1
9	101	10	90	- 11
10	123	10	100	- 23

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Question 174 Marks

The following table shows the total revenue and total cost schedules of a competitive firm. Calculate the profit at each output level. Determine also the market price of the good.

Quantity Sold	TR (₹)	TC (₹)	Profit (₹)
0	0	5
1	5	7
2	10	10
3	15	12
4	20	15
5	25	23
6	30	33
7	35	40

Answer

Quantity Sold	TR (₹)	TC (₹)	Profit (=TR-TC) (₹)	Market Price $\left(=\frac{T R}{Q}\right)$ (₹)
0	0	5	- 5	-
1	5	7	- 2	5
2	10	10	0	5
3	15	12	3	5
4	20	15	5	5
5	25	23	2	5
6	30	33	- 3	5
7	35	40	- 5	5

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Question 184 Marks

Read the following text carefully and answer the questions 1-2 on the basis of the same:
A firm produces and sells a certain amount of a good. The firm's profit is defined to be the difference between its total revenue (TR) and its total cost of production (TC). Profits are the difference between total revenue and total cost. Both total revenue and total cost increase as output increases. The gap between TR and TC is the firm's earnings net of costs. A firm wishes to maximise its profit. The firm would like to identify the quantity qo at which its profits are maximum. By definition, then, at any quantity other than qo, the firm's profits are less than at q. As long as the change in total revenue is greater than the change in total cost, profits will continue to increase.
-NCERT, 2022-23
1. Define producer's equilibrium. State the conditions of producer's equilibrium for a competitive firm.
2. Will a firm continue to produce even if it is incurring losses under perfect competition? Do you agree?

Answer

(1) Producer is said to be in equilibrium when he maximises his profits or minimises his losses.
The conditions of producer's equilibrium for a competitive firm are:
(i) $MR = MC$,
(ii) MC is rising or MC curve cuts MR curve from below, and
(iii) AR (price) $\geq \operatorname{AVC}$ (average variable cost).
(2) No, in the long run; Yes in the short run. In the long run, a firm will quit the industry in case it is incurring losses. In the short run, a firm continues to cope with losses so long as AR$\geq$AVC. Because, by covering variable costs, the firm is incurring the loss of fixed cost only which it has to incur even when production is discontinued.

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4 Marks Question - Economics STD 11 Commerce Questions - Vidyadip