O COST

nysical inputs, both purchased and self provided by owners, multiplied by their corresn
cost. Imputed
the cost of producing good. Expenditure on purchased inputs is explicit cost. Imputed expenditur
provided inputs is implicit cost. ture pronices selfi
10.1 MEANING OF COST IN ECONOMICS
Cost of producing a good, in Economics, 1S the sum of all the
expenditures on inputs including a certain minimum profit. The dircct
41JOVYW119
dir
means expenditure on actual purchases or hiring of inputs. l is cal.CCt exr
and indire
The indirect expenditures refers to the estimated value of inputs proviaexpli
which do not find place in the account books. It is called implicit costthe
endiCostture
some minimum profit. Minimum profit refers to that amount of profs alsoe
t
must which aproneudes
get in the long run to continue to produce the given good, and not si
any other good. It is called 'normal profit'. In this way cost in
in econo
prod
economics,
Economic cost is the sum of actual money expenditure on inputs
is ction to
defined as
ex
and estimated value ofthe inputs provided by the owners includingicit
(implicit cost).
uding normal cost)
profit
Main examples of implicit costs are estimated salary of the ow
interest of financial investment by the owners, estimated rent of theowners,
hui Stima
by the owners Normal profit is the level of profit equal to the aled uilding owned
opportunity cost of
entrepreneurial effort, and is one of the implicit cost. Examples of
explicit costs are
Salaries of employees, expenditure on raw materials, rent paid, terest paid, taxes on
production, depreciation, etc.
10.2 FIXED COSTS AND VARIABLE COSTS
4MA1QHEVRF
Economic cost in the shortis subdivided into (a) fixed cost and
run
(b) Varii
Fixed costs are the costs which do not change with the change in cOst.
These costs remain
outputt of a
even if output of the good is zero. Once a
production n00d,
functioning there are certain costs which cannot be avoided. Take, for examnle starts
of the factory building. The rent must be paid whether the production is high he TeDt
Similar is the position of costs like interest, salary of the
permanent staff, den ,
license fees, etc. All these are fixed costs.
Variable costs are the costs which change with the change in output of
If output is zero these costs are also zero. As a
output or the good increases
also increase. Main examples are cost incurred on raw
these c
materials, electricity, casel
labour, excise duty, sales tax, etc. casual
Total economic cost of producing a good is the sum of fixed costs
and variable
A comment costs.
ea..

No item of cost is always a fixed cost variable cost. An item of

or a
variable cost in one set of cost whieh
conditions may become fixed cost in another set
For of conditions
example, rent is a fixed cost so long as another
building is not hired. If another
282
 h i r e d
the
the cost incurred on rent rises and rent
becomes a variable cost. For
fing
is
adlv, periodstwo time
distinguished: (a) short run and (b) long run.
are

s pupose
neriod some costs are fixed and some are variable, while in the long
o r

arevariable. In the short run, the producer does not have enough time
are
variable

cosis

:d
all about changing certain costs. In the long run, he has enough time to
decis f cost. Therefore, short period has both fixed and variable costs,
h i l e
l o n g
any
p e r i o d
has no fixed cost but only variable costs. The
subject matter of this
0ng chort run cost. Long run cost
short
is outside the scope
only

Is
ufthesyuabus
pler

COSTS
RUN
SHORT
1 V79EFETS99
A 3 ID I e a n i n g

TFC
cOst is defined as the cost of producing a given
run

Shortt keeping some inputs fixed and others variable.

el dcer is free to change only some inputs, and not all
takin a short run decision. In the short
be taking
pen 4he aid is
Said to be

gnuts, and others are variable.

are fixea 2
, me
S O m e
costs
Units of output
03.2 Total Costs
fixed and total Fig. 10.1: Behaviour of TFC of a good
the sum of total cost
run total cost is
Short hat happens to thesecosts as output increases?
costs.

ariable
t us explain.

Total Fixcd Cost (TFC) remains constant at all levels

Fixed Cost (TFC)
:
Tatal
6 ) Total
is parallel to the X-axis (Fig. 10.1).
curve, therefore,
utnut. TFC
is zero, 0Q1, or
OQ, or even higher TFC remains
t means that whether output
It does not change with the change in output.
ied al OF.
Cost (TVC) : The behaviour of TVC is derived from the
Total Variable
i)
9.
in the Law of Variable Proportions studied in the Chapter
khaviour of TP implied
in the behaviour of TVC as output increases. In the first
are two phases
There
It means new unit of output produced
phase. TYC rises at decreasing rate. increase inevery the efficiency of the variable input
of the
olves a lower cost. It is because division of labour.
utilisation of fixed inputs, specialisation and
oetoIn the
proper
second phase, TVC rises at an increasing rate. This means that every
to the
ww unit of output produced has higher in the compared of the
a cost as

Pevious unit. This is on account of fall efficiency

These two TVC
erable input due to the overutilisation of fixed inputs.
phases are shown in Figure 10.2.
IVC curve is first concave up to point M and then becomes

nvex and is upward rising throughout. M is the point of inflexion.

M.
ne Ist phase is
up to point M and the second phase after point

m) Total Cost (TC) : TC is the sum of TFC and TVC. Since

Constant at all levels of output, TC always exceeds TVC by
X
mount of TFC. To draw TC curve, we first draw TFC curve O
ahen add TVC
Units of output
curve to it. Refer to 10.3. Figure Fig. 10.2: Behaviour of TVC of a good

283
 TC = (TFC + TVC)

TVC

TFC
TFC

X
Units of output Units of output
Fig. 103: Behaviour of total cost Fig. 10.4:
f a good andRelation
TVC ofa between
good
TFC, TC
At 0Q output TC is TQ, which is the sum of VQ (fixed cost) and VT (Variabi.
If we draw TVC and TC curves on the same diagram, both will run verticallv
able cor
and the vertical difference betweenthe two is cqual to TFC. See figure 10.4 Pralle
In the above diagram, TR = VQ = Total fixed cost.

10.3.3 Average Costs

There are three types of average costs in the short run : average fixed cost. :
variable cost and average total cost. average
) Average Fixed Cost (AFC)
By dividing TFC by total output of a good, we get AFC.
TFC
AFC Outpu
Now, as output increases, AFC falls because TFC (the numerator) is constant, while
output (the denominator) is continuously rising. So, AFC continuously falls.
AFC curve (Fig. 10.5) is a rectangular hyperbola. lt means that the rectangles
formed on all the points have the same area. The area of such a rectangle equals TFC
(= AFC * ) . Since TFC is constant, the area of cach rectangle must be the same.For
example, ODAC is the rectangle at point A, and OFBE is the rectangle at point B. The
area of the rectangle ODAC must be equal to the area of rectangle FBEO. The AFC
curve in Fig. 10.5 is based on TFC equal to R60. AFC curve falls continuously to the
right but will never touch the X-axis because AFC will never be zero.

604
50 AIC
404 AVC

30
20
0- AFC
E X
1 2 3 4 5
Output (units) Units of output
Fig. 10.5:AFC curve, a rectangular hyperbola Fig 10.6: Relation between ATC and AVC

284
 Variable Cost (AVC)
q u a l s TVC divided by output.
AVC
AVC = TVc

AVC
Output
output
nands, AVC
w xpands,
e falls initially and then rises
As (Figure 10.6) after a level of output. It is a
curve.

chape
Total Cost (ATTC)
Average
ATC
equals TC divided by output.
ATC = TC
Output
As output
increased, ATC falls initially and then rises after a level of
d o w n w a r d slopin
curve, downward
curve, sloping initially and then output. It
U-shape
(Figure 10.6).
upward sloping after a certain
elofoutput
between the ATC and AVC curvo
anarison
comparison the following is observed.
Both AVC curve and ATC curve are U-shaped.
ATC curve lies above the AVC curve.
The minimum point Or the AVC curve iIS at a lower output level and that of

the ATC curve

at a higher output level.
As output increases, the vertical difference between the two curves goes on
decreasing. This relationship must be kept in view while drawing the two
curves. The reason is that ATC less AVC equals AFC, and AFC by definition
on decreasing as output is increased.
goes

13.4 Marginal Cost (MC)

cost of producing one more unit of output. For
MC is the addition to total
of of
mmple, if TC of one unit of output is 10 and that two units is 18, then MC
Let total units of output be 'n'. So,
o units of output is 8 F18-10).
MC, = TC- TC,

= 18 10 7 8

Remember, MC when calculated from TVC

is also the same. It means MC =

TVC.-
schedule given in Table 10.1).
NO units also. (Verify this from cost
Thealternative way to find MC is
ATotal Cost
ATVC MC
MC A or MC AQ
AOutput
is more
hIs method can be applied even when change in output M
an one unit at a time.
level
A Oulput increases, MC falls initially and after a output
s.Therefore, MC curve is initially downward sloping and arter

Oulput it is U-shaped. (Figure 10.7)

upward sloping. It is
Output (Units)
lhe MC curve is downward sloping upto M and upward sloping
ter M. Fig. 10.7: Marginal cost

285
 10.4 COST SCHEDULE
To show clearly the behaviour of total costs, average costs and maro:
D5YRPMKB33
take an imaginary cost schedule of a good (Table 10. I). narginal cost,
let us
In the schedule, TVC rises at decreasing rate upto 2 units of outns
increasing rate from 3 units of output onwards. AVC falls up to 2 uniteut, and rises
rises thereafter. ATC falls up to 4 units of output and rises thereafter of outpul andà
As Compared to AVC, ATC falls upto a greater output level.
Whvo
The reason is found in the continuously talling AFC which is a
part o
to Table 10.1. TABLE 10.1
Cost Schedule of a Good
ATC. Refer
Output Total Costs Average Costs

Units TFC TVC

)
TC AFC
Cost (R)
AVC
Marginal
ATC
2 3 4 2+3) |5F 2+1 |6 3+1) MC
|7(=4+1)
60 60
60 20 80 60 20 80
60 30 90 30 15 20
45
60 0
48 108 20 16 36
60 68 128 15 7 18
32
5 60 170 12 20
110 22
42
Both AFC and AVC falling upto 2 units of output. As a result ATC also falle D
are

from the third unit of output onwards AVC starts rising while AFC as ut
usual is fallino
ATC is falling upto 4 units of output. why? It is
because the fall
MC
ATC in AFC is greater than the rise in AVC on third and fourth unite
AVC For example, when output is increased from 2
units to 3 units
AFC falls by 10 while AVC rises only by T 1. As
M2 falls by 9. Same happens when output is raised
a
result ATC
from 3 units
M1
N2 to 4 units. This is
why on the third and the fourth unit of
oulput
AVC starts rising, while ATC is still
falling.
The situation changes
output is increased to the fifth unit
as
onwards. On the fifth unit AVC rise by
X 5, while AFC fls
Units of output by 3. As a result, ATC rises by 2. This is the
ig. 10.8: The relation between MC and AC the minimum reason why
point of the ATC curve lies to the right of the
minimum point of the AVC curve.
(Figure 10.8)
10.5 RELATION BETWEEN MC
AND AC
MC affects AC, whether AVC or
ATC. The mathematical relation the two between
LAP7B5G9Wx is as follows:

(1) If MC is less than

AC, then AC falls.
(2) If MC is
equal to AC, then AC is constant.
(3) If MC is
greater than AC, then AC rises.

286
 is true both
above relationship
betwcen MC and
can be verified from the cost ATC, and
7heab ship schedule between MC and
relationship
1s represented as ule given
follo ws. (Fig. 10.8) above in Table
and
he
( a a y p l u c a l y ,t h e
10.1.
MC
AVC. So long as
d
AVC curve slopes MC
curve
1or
C X a m p l e ,

Curve, the
the Avvc (whether
downwards. This rising or
falling)
Take,
a
below
the
AVC
J and as a result, Avc becomes is up to
point M
MC equas constant. When MC
e,
c u r v e
the AVC curve starts
sloping upwards. This is after
curve lies
the
A V C

lationship between MC
relati
and ATC curves. M. You can
ove t h i s

v e r n t y

aso
te that M1C
curve
cuts both AVC and ATC curves at their minimum cost
and
This precaution
M,.
This must be observed, while drawing AVC and
together.)
N o t e

M, and MC curves
points or ATC
M C c u r

MC curve intersects the AVC curve (or the ATC curve) at its
Vhy does t h e
R e f e r to Figure 10.8. Let us suppose that the MC curve intersects the
to Figure
point: Kerer But after
ijaimum
AVC curve s o m e w h
here in its falling portion at W. W,
curve is stillthe AVC
and it isis possible
possible only when MC curve is below the AVC curve.
a n d it
sloping,
be below the
AVC curve after intersecting the AVC curve from
A
ownward curve
MC
an the 1S not possible for the MC curve to intersect the AVC curve
Therefore, it
at W.
helow
i t s falling portion.

curve intersects the AvC curve somewhere at its rising

that the MC
that if the MC curve intersects the AVC curve at
Now suppose
anOse
to saying
It a m o u n t s it is so the AVC
at W. be b e l o w the
AVC curve before that, and if
portion must
MC curve
Which is not there. Therefore, it is not possible
the downwards
before
W2 rising portion.
st be sloping to intersect the AVC curve
at its
curve
for the MC Curve must
intersect the AVC curve only at the
shows that MC
The above
reasoning curve.
the ATC)
of the AVC (or
minimum point

FROM MC
DERIVATION OF TVC
10.6 HCFFUDTOJ
10.6.1 Derivation
10.3.4). Since it is
a

be derived from TVC (Section

that MC can MCs at different
We have seen
derive back TVC
if we are given
we can
also
mathematical relationship,
levels of output. number
s u m of
marginal costs of the
cumulative relevant
is simply the 10.1. The
o f good a
verify this from Table
that good. You
can
s p r o d u c e d of
portionsare in Table 10.2.
reproduced
We c a n do so by
margiaot adding
of 3 units of output. find TVC
we want to find TVC 48. Similarly to
POSe 20 + 10 +
18 =

COstsuput units 1, 2 and 3, i.e.

4
levels a n d
costs of output
output have to add marginal
20 r we

20+ 10 30.
287
 TABLE 10.2
Derivation of TVC from MC

MC TVC
Output
() (cumulativesum of MCs
(Units)
20

10 30
18 48

4 20 68
5 12 110

10.7 NUMERICAL ILLUSTRATIONS

Problem 1
Total Fixed Cost is 90. Complete the following table

Output Marginal Cost Total Cost Average

(Units) Total Cost )
10
20
15
Solution :

Output MC TVC TFC TC ATC

0 10 90 100 100
2 20 30 90 120 60
3 15 45 90 135 15
Problem 2
Given that the total fixed cost is
60, complete the following table:
Output Average Total
(Units) Variable Cost Marginal
Cost Cost
)
20
2
15
3 20
Solution:
Output AVC TVC TFC TC MC
0 0 60 60
20 20 60 80 20
15 30 60 90 10
20 60 60 120 30
288
 xed cost is
h a tt o t a l If i x c o 24,
complete the following table
m Average
Output Total
Marginal
As mg

(Units) Total Cost Variable Cost Cost

R)
50

2 40
45

Output ATC TC TFC TVC MC

24 24 0

50 50 24 26 26
40 80 24 56 30
2
45 135 24 111 55

the total cost of production of differenta firm at

oblem
oble
table shows the
shows

following average
able cost and the marginal cost at each
variabl
out t h e
The follo

Find
Fin
tput.
o u t p u t .

elsof
c lo fo u t p u t :
2
Output
(Units)
100 130 I50
) 60
Total cost

Output Total Cost TFC TVC AVC MC

lation

(Units)
)
60 60
60 40 40 40
100
60 70 35 30
2 130
60 0 30 20
150
3
TC at 0 output.
Note: TFC=
Problem 5
levels of output by a firm.
table shows the marginal cost at different
The following at
total cost and average variable cost
Btotal fixed cost is F 120. Find its average
aech level of output
2
Output (Units)
Marginal cost F) 40 30 26

289
 Solution
TFC MC TVC TC ATrC AVC
Output
(Units)
0 120
120
40 40 160 160 40
120
30 70 190 95 35
20
26 96 216 72 32
120

Problem 6
The following table shows the cost function of a nirm. Calculate its average variable

cost as each level of output.

cost and marginal
Output (Units)
30 45 56 69
Total cost )

Solution
TC TFC TVC AVC MC
Output
(Units) )
30 30
45 30 15 15 15

2 56 30 26 13 11

69 30 39 13 13

Problem 7
From the data given below, calculate the (i) average fixed cost, (i) average variable

cost.
cost and (ii) marginal
Output (Units) 3 4 5

Total cost K) 30 90 110 120 140 180

Solution Cost (in )

Output TC FC VC AFC AVC MC

30 30
90 30 60 30 60 60

2 110 30 80 15 40 20

3 120 30 90 10 30

4 140 30 110 7.5 27.5 0

180 30 150 6 40

290
 g information
IS given about a fi
F o l l o w i n g i n l o r

Output (Units)
3
Total cost ) 400 S50 660 790 940
find out
1150 1460
i n f o r m a t i o n

this fixed cost of producing 4 units.

(i) t h e a v e r a g e

cost of producing 5 units.

F r o m

variable cost
average

the average cost level of utput.

)
(ii) the least

cost producing the 3rd unit.

marginal

the
total variable
cost of producing 6 units.
(iv)

Solution: =
7 100
400+
4
)
(i) (1150
400)5= 7505 7 150 =
+
5 = 7 230
ATC
=

11 50
(i)
5 units: =
R 130
660

iv) 790 400

=
? 1060
-

1460
(v)
POINTS TO REMEMBER
composed
explicit cost and implicit cost including normal profi
of exp
cost is
Economic
et rrefers to the actual money expenditure incurred on purchasing and hiring inputs.
e f e r s too t
cost
Explicit refers to the estimated value of inputs provided by the owner inlcuding normal profit.
r e f e r s to

Implicit
cost is that minimum profit which a producer must get in order to continue to produce the given good
Normal prof
run.
the long
in
costs are the
costs which change with change in output of a good.
do not
Fixed
are the costs which change with the change in output of a good.
Variable costs cost is the sum of total fixed cost (TFC) and total variable cost (TVC).
economic
Total
is a period in which
some costs are fixed while some are variable.
Short run in which all costs are
variable.
period
Long run is
a
of producing given level
a of output, adjusting only the variable inputs.
Short run cost is the cost
cost is the sum of TFC and TVC.
Short run total
constant at all levels of output.
TFC remains
TWCses at decreasing rate in the beginning, and then rises at increasing rate after a level of output.
equals TFC. TC less TFC equals TVC.
TC less TVC
output produced. It falls continuously a s output increases.
divided by units of
AFC equals TFC
AVC falls in the beginning up to a level of output and then starts increasing.
ATC is sum of AFC and Avc. ATC falls in the beginning up to a level of output and then starts increasing.
MC is the addition to total cost of producing one more unit of output.

The relation between MC and ATC (or AVC) is as follows:

If -

MC is less than AC, then AC falls.

-

If MC is equal to AC, then AC is constant.

If MC is
greater than AC, then AC rises.
-

TVC is the cumulative sum of marginal costs.

291
 Curvescurves o"gle
on a e d
diagram.
relation

ween MC and ingle d

MULTIPLE CHOICE QUESTIONS
(Answers at the end of esercises)
Mark B p i a nt h e

the relatton between N ATC, Aagy an

Choose the correct alternative in the following questions. is
n

relation detween ANC

the
Cand AVC
business accounis

as compared
to cost in and
.cost in bconomics ( 6 ) Narrower
plain
ATC
(a) Same (d) Not comparable
NSWER QUESTIONS
curves
(c) Wider
(HOTS
hefollowing qu
estions In about 100
2. Long run cost consists of
(b) Fixed cost TFC. TVC
and TC curves in
yC and 7
a words
(a) Vanable cost varnable cost nawATC, AVC and MC curves in single diar.
(C) Parily variable and partly fixed cost (d) Mostly
Dew A7 diagram and
is not economic cost duagram andcxplan the
agram anden
ICAL Q U E S T I O N S
Which of the following Purchase of machine
(b) MERIC
(a) Payment offactory rent
(d) Payment
of interest TFC. TVC, AFC, AVC and eaplam theon bg WITS
(C) Normal profit
(HOTS) ATC from telutum,betam Mari
4.The typical behaviour
of TVC in the short
nun is that it

Output (Units) | the folo e following :

em
(a) Increases at increasing rate throughout
D) Increases at decreas1ng rate throughour
Total Cost (
increases at decreasing rate initially and then at increasing
rare 60 WST
ac
increases at rate initially and then al decreasing
(a increasng
5, As output is increased the difference between TVC and TC 20
(a) IncreaSCS (6) Remains unchanged 50
(c) Decreases (d) Initially increases, then decreases

6. As output is
increased, AVC:
(a) goes farther away from ATC (6) Comes nearer to ATCC that TFC is 12, calculate TC, 280
TVC, ATC and
() Remains equidistant rom Al (d) Initially (a), then (b)
Output (Units) A

7. AVC of one unit of output is ? 10 while that of 2 units is 9. MC of one unit is

a) 8 (b) 9
Marginal Cost ()m tne folu
(c) 10 d) 19
8. When ATC is falling. MC
(a) Must be falling (b) Must be rising
(c) Initially falling, then nsing (d) Has no specific relationship
Afim produces eOod XX. Actual money
l00
good units
SHORT ANSWER QUESTIONS-I o0 for
upplies inputs worth & 500 for which he doe Dditure inçr
which he does expenditure incurted on
Answer the following
questions in about 60 words.
1. What is fixed cost? What
Marks How do you account lor the difference?
not
receive any
payment. producing
Ihe
this good
ist
happens to AFC as output i5 increased Calkulate economic cost. economc cost9The 1599 T owaeT
2. Define variable cost. How turned oa
does AVC bebave as
output increases? wbt 21%
3. Distinguish between short run and long run in tems of cost. Purchases of raw materials
) HOTS
4. Draw TFC and TVC curves.
() Paymentor wages and salaries
200
5. Draw TFC and TC curves on 00
6. Draw ATC and AVC curves
a
single diagram. un) Payment of rent
7. Draw ATC, AVC and MC
on a
single diagram. () Donations
50
curves on a
8. Define single diagram. 00
marginal cost and give an (HOTS) (v) Estimated value of services of owner
SHORT ANSWER QUESTIONS-II
illustration. (vi) Expected minimum profit
00

Answer the (vi) Estimated super normal profit

following questions in about 70 words. 14 Marks 240
1. Explain the concept of .
economic cost. ldentify fixed costs and variable costs:
2.
Distinguish between fixed and variable costs. Give ) Salary of permanent staff (HOTS
3. Giving examples explain at least (in) Interest payment
what is implicit cost?
one
example of each. () Wages to daily wage workers (IV)
(9) Depreciation Expenditure on raw matenals
(1) Excise duty
(vi) License fee
292
(vii) Sales tax
 n fixcd cosis anu variable costs. Give trw h the help o
enwecn schedule.
cost schedule
of a firm. lts tor
fixed ecOst nples of eaeh"ol
wie
ANSWERS of
outpur
is 100. Calculate
ae
eve &verage variable cost and
marga
AC(oAC 9ATC
c h v e n

(units)
2
p (Units) TCc
TC ( TVC 350 450 610 820
00
0 TFC TC TVC)
120
150
200 60 4
0
56
100
()
(CC-1FG|
00
350
AVC

80 ss0 250
00
TC( A o ATC ) 610
(Units)MC ) T V c )TFC
()
pu 100
820 20
** *"
12
cost schedule ot a nm. ts fixed cost is
s
8 210
10 5
c o s t

sine 90.Calculate average total cost and

2 7.S U. elow
o f o u i p u t .

marginal costa ch

output ( u ) _
1
. Economac cost (2100)
Actual moncy eapenditurr (500 Total Var
Cost () 80 150 235 30
Cost of inputs supplied by the
owner TVC TFC
TC
Normalprott 500 50* 300 0 < 10O ATC
MC
(i) (i) (ii) (v) (vi) 200+ O p

C COst ' n i t s

Fred (), (iv). (vw), S0

cost: (i). ti), (v). (v) Variable (u
:
cost
17
SOME IMPORTANT QUESTIONS JU
150 30
1. Define fived cost. 100
2. Define marginal cost 235
330
3. Define variable cost
yariable cOt a d d g n a l cost at each g
4. Why does average fixed cost fall as Output nses given level of
aklatewo output from the
S.what 1s the relationship between marginal cost and average vaniabie cost Output(unit) following tabc.
6. From the following table, calculate average variable cost of each given level of output :
Total Cost( 40 60 78
Output (units) 124
Total cost

Ans.
Marglal cot)40 30 35 9 Output

uniES
TVC
Marginal Cost
Output (Units) Mc TVC () AVC )
40 O0
*

5
97

e 10lowing table, calculate average variable cost of

cach gIven ievet ot Ouput.
Oatput (units) 1 2 piete the 10llowing table:
Output Total cost
werage varíable
n's.
Marglnal cost () 80 70 72 78 units Cost ()
Marginal cost
Output (Units) MC ) TVC ()
AVC ) B0
80
180

2
74
5 440
94
295
 e

ATCollowin:
reaso,

ifference between A
AVC MC whenmargnalc and AvCstakemenis are
rises, average
Output C TFC TVC
Aainvidualis both owner and cost
e decteases true onf
(units) () ( the wil also risewith
0 0
100
informaon,

manager xofaof decrease in

the
level
180 80 100 ucer
Dorows money and
opens a shop tuaken of
oapuat
270 190
95 s r o n s infomat
formation. Explain. shop. T e shop premi
on
remtt.. I
350 80 270
e takes a larm on rent nd c

mies
ldentify implwcit cosM *s HO l
Explain. cost and
440 80 360 90
o n

ese
t h i s

the level of output, AFC

fa
u n l o m a t i o n .

rm ing with the

chehelp
owned by hum. explicit cost fre
4. The total fired cost of a firm is 12. Given below is i15 marginali rost chedulc. Calculate total cost and # i t hune
of ldent
dentusffyy the implicit
tion between goes on family im
and
Varable cost for cach
given ievel or Oupu. a
AVerage #hast
is
t h erela

hoTOWs money nun

Average Variable fal ing. True
Coxt and
C to
me m be
embersrs l'de
dn
ent ify explicit and
or
expl
Output (units) buinessbutbur managesAvert age Fals Explain.
a
A p r d u c e r

Marginal cost () 8 12 the relation

en implicit cox
Ans.
9 what
is
talling? I marginal cost he
Tonal C
and f
Output FC MC TVC AVC TC ariable cost
he Multiple Cholce Questions avetage varibasiness Toal Fined
able costhimself. tdentify Cos zero? is
(units)
marginal implhcit costs.
when
3. (b)
(c)5.6) 6. (6)
4.
cost is
8 derstanding Based Questions 7. te) 8.(o
Unders risng and *

cost nomics? rom

What 1s c o s

CBSE
5.5
Cost in
economics, isis
mal profit.
the
the
sum of
actual Examinacion Papers
30 d money (Alongwich Answers)
42 S4
OwD

Aproduccr
invests his oown
his
savings in
expenditure on inputs,
15. Calculate TVC and TC from the
following cost schedule of a fimm whose hxed costs are
explicitcos from this information. startinga
business and cstimated value of
10.
Imputed interest on savings. it inputs provided Dy
Output (units) 4
Ioplicit Cost
employs manager u
a

d lent savings.
his is to
a
cost look after
Marginal cost ( 6 6 Cost: Salary paid to because he looses it
ldentify imphicit an
16. Calculate total cost and average vanable cost of a firm at cacn
manager.
w with the help of a numencal It is a cost interest whuch he
gven ievet or
would have carnE
below. Oupur irom its because it is
Units of output example
cost sche
schedule given that
average
verage cost actual money icd if he
Outpar (units)
AFC()
I
6 TC
c

AC
1s
constant when expendinure on an
inpu.
MC ()
60 30 20 I5 10
U 10
MC
MC maryinal cost is equal to .
32 28
AIS. 30 35 43 20

Output
Why does the diflerence betweeniflerence between AlC and 10 10
AFC TFC MC iiven that ATC AvC
AFC dectease with increase
TVC AVC
(units) () =
+
in level of
) .
ATC AVC =
ourpur? Explain.
32 AFC

122 AFC
40
90
efinition TFC IS constant. Output
120 Iheretore, as
180 Since AFCAIC-AVC, he difference output is increased, AFC
ATC and AVC falls as between alls.
98
215 output is
increased.
17. Distinguish between fixed cost and L58
Variable Cost and
variable cost and give one
18. Why does the Marginal Cost curves in a
single diagram.
example of each. Draw
AVErage iotal
diíference between Cost, Average
Output? Explain average total cost and
average variable cost
decrease with increase in the level of
296