DELHI PUBLIC SCHOOL – BOPAL, AHMEDABAD

ASSIGNMENT – CYCLE 8
Cost analysis

1 Mark Questions
1. What is meant by total cost?
2. What is meant by average cost ?
3. (a) What is meant by marginal cost ?
(b) Which cost, fixed or variable, determines MC ?
4. (a) How is TVC derived from MC ?
(b) How is MC derived from TVC ?
5. Express total costs in terms of fixed and variable cost.
6. Express average total cost in terms of average fixed cost and average variable costs.
7. (a) What are fixed costs ?
OR
How does total fixed costs change when output changes?
(b) What is the general shape of AFC curve ?
8. Define variable costs of a firm.
OR
Define variable costs.
9. Draw TC, TFC and TVC curves in a single diagram.
10. Draw AC, AVC and AFC curves in a single diagram.
11. Draw ATC, AVC and MC curves in single diagram.
12. What is the general shape of the AC, AVC and MC curves ?

3/4 Mark Questions

1. Distinguish between fixed costs and variable costs. Give two examples of each.
2. What is the relationship between TC, TFC and TVC.
3. Why is the MC curve in the short run U–shaped ?
4. Explain the relationship between average variable cost, average cost and average fixed cost with the help of a
diagram.
5. Explain the relationship between marginal cost and average cost with the help of a cost schedule and diagram.
6. Classify the following into fixed cost and variable cost :
(a) Rent for shed (b) Minimum telephone bill
(c) Cost of raw materials (d) Wages to permanent staff
(e) Interest on capital (f) Payment for transportation of goods.
(g) Daily wages (h) Telephone charges beyond the minimum
7. Do ATC and AVC curves intersect ? Give reasons.
8. Why is AC curve in the short run U–shaped ?
9. Distinguish between AFC and AVC. How are these calculated? How do they behave with increase in the level of
production of a firm ?
10. Explain the relationship between marginal cost and average variable cost with the help of a diagram. [Delhi 2003]
11. Which cost, fixed or variable, determines against cost? Give reason.
6 MARK QUESTIONS
1. Draw Average Total Cost, Average variable Cost and Marginal Cost in a single diagram. Also explain the relation
between marginal cost and average total cost with its help.
2. Distinguish between fixed costs and variable costs. Explain the relationship between marginal cost and average
cost.
3. Classify the following into fixed costs and variable costs : (i) Salary of the permanent staff (ii) Interest payment (iii)
Wages to daily workers (iv) Expenditure on raw materials (v) Excise duty (vi) Sales tax.
4. Explain the relationship between ATC, AVC and MC with a suitable illustration.
5. “Increasing and decreasing returns to scale respectively imply downward and upward sloping portion of the long
run average cost curves”. Defend or refute.
OR
Why is LAC curve U–shaped? Explain
6. Distinguish between fixed and variable costs. Why is short run average cost curve of a firm U–shaped?
7. Why average cost curve is of U–shaped? Give reasons.
OR
Why short run average cost curve of a firm is U–shaped? Explain.
Numericals
1. Calculate total cost, average cost, average fixed cost, average variable cost and marginal cost on the basis of the
following information :
Output (Units) 0 1 2 3 4
TFC (Rs.) 60 60 60 60 60
TVC (Rs.) 0 50 90 180 300

2. Calculate (i) TFC and TVC, (ii) AFC, AVC and ATC, (iii) MC, from the following data. [Delhi 2000]
Output (Units) 0 1 2 3 4 5
TC (Rs.) 180 300 400 510 720 1000

3. Suppose that TFC is Rs.120, find out (i) TC and TVC (ii) MC from the following data : [Foreign 2001]
Output (Units) 1 2 3 4 5
ATC (Rs.) 240 160 140 160 180

4. Given that fixed cost is Rs.20, calculate (a) TVC and (b) TC from the following : [Delhi 2004C]
Output (Units) 0 1 2 3
MC (Rs.) 0 10 15 25

5. Complete the following table if the AFC at one unit of production is Rs.60. [NCERT]
Output 1 2 3 4 5 6 7 8
TC 90 105 115 120 135 160 200 260
TVC
 TFC
AVC
AFC
ATC
MC

6. A firm’s fixed cost is Rs.2000. Complete the TVC, AVC, TC and ATC from the following table : [NCERT]
Output (units) 1 2 3 4 5 6 7
Marginal cost 2000 1500 1200 1500 2000 2700 3500

7. The fixed costs of a firm are Rs.120. Its marginal cost at different levels of output is given below : Calculate the
total cost and average variable cost at each level of output. [Delhi 2001, 2002]
Output (units) 1 2 3 4
Marginal cost (Rs.) 60 52 56 64

8. Calculate the marginal cost and average variable cost at each level of output from the following :
Output (units) 0 1 2 3 4
Total cost (Rs.) 90 135 174 216 264
[Delhi 2002]
9. Total fixed costs of a firm are Rs.100. Its average variable cost at different levels of output is given below :
Calculate total cost and marginal cost at each level of output. [AI 2002]
Output (units) 1 2 3 4
Average variable cost (Rs.) 60 56 60 64

10. Fixed costs of a firm are Rs.30. Its total variable cost at different levels of output is given below. Calculate
average cost and marginal cost at each level of output. [Foreign 2002]
Output (units) 1 2 3 4
Total variable cost (Rs.) 20 38 60 86

11. From the data given below calculate marginal cost.

Output (units) 1 2 3 4
Average variable cost (Rs.) 20 15 10 10

12. Assuming that the total fixed cost is Rs.24, complete the following table : [Foreign 2001]
Output (units) 1 2 3
ATC (Rs.) 50 40 45
AVC (Rs.)
MC (Rs.)

13. Calculate (a) Total variable cost and (b) Marginal cost from the following : [Delhi]
Output (units) 0 1 2 3
TC (Rs.) 10 20 35 55

14. Complete the following table :

Output (units) TFC TC ATC MC AFC
0 8 – – – 8
1 – – – 12
2 – – – 10
3 – – – 8
4 – – – 6
5 – – – 5
15. From the following table, calculate average variable cost of each given level of output. [Delhi 2004]
Output (units) 1 2 3 4
Marginal cost (Rs.) 40 30 35 39

16. Given that total fixed cost is Rs.30, calculate (a) Marginal cost and (b) Total cost from the following :
Output (units) 0 1 2 3
Marginal cost (Rs.) 0 20 50 100
[Delhi 2004C]
17. Complete the following table :
Output (units) Total Cost (Rs.) Marginal Cost (Rs.) Average Variable Cost (Rs.)
0 60 – –
1 140 – –
2 190 – –
3 240 – –
4 300 – –

18. Suppose that a firm’s total fixed cost is Rs.100, and the marginal cost schedule of a firm is the following :
Output (units) 1 2 3 4 5 6 7
Marginal cost (Rs.) 10 20 30 40 50 60 70
(a) Is the MC curve U–shaped ?
(b) Derive the AVC schedule. Will the AVC curve be U–shaped? Discuss, why or why not? [NCERT]
19. A firm is producing 20 units. At this level of output, the ATC and AVC are respectively equal to Rs.40 and Rs.37.
Find out the total fixed cost of the firm. [NCERT]
20. Output increases from 3 units to 4 units. As a result TC rises from Rs.19.60 to Rs.24.50. Find out the marginal
cost.
21. The average cost of producing 5 units of a good is Rs.6 and that of producing 6 units is Rs.5. What is the MC of
producing 6 units.
 Test 1 – Theory of Cost
Saturday, October 1, 2016
Total marks : 30 Time Allowed : 1 hour 30 minutes

All questions are compulsory

Attempt All the questions in serial order
Q No. 1 to 23 carries 1 mark each
Q No. 24 carries 3 mark
Q No. 25 carries 4 mark

1. What is meant by total cost?

2. What is meant by average cost ?
3. (a) What is meant by marginal cost ?
(b) Which cost, fixed or variable, determines MC ?
4. (a) How is TVC derived from MC ?
(b) How is MC derived from TVC ?
5. Express total costs in terms of fixed and variable cost.
6. Express average total cost in terms of average fixed cost and average variable costs.
7. What is the general shape of AFC curve ?
8. Define variable costs of a firm.
9. Draw TC, TFC and TVC curves in a single diagram.
10. Draw AC, AVC and AFC curves in a single diagram.
11. Draw ATC, AVC and MC curves in single diagram.
12. What is the general shape of the AC, AVC and MC curves ?
13. Can the average cost be less than the marginal cost when average cost is rising ?
14. Can the average cost be more than the marginal cost, when the average cost is falling?
15. What is the difference between TC and TVC called?
16. What will happen to ATC when MC > ATC ?
17. What happens to ATC when MC = ATC ?
18. What happens to ATC when MC < ATC ?
19. When AC is rising, what is the relation between MC and AC ?
20. Can average variable cost meet average cost ?
21. Can AFC curve meet the X–axis ?
22. At what point AC curve, MC curve cuts it ?
23. Give one example each of fixed cost and variable cost.
24. Which cost, fixed or variable, determines against cost? Give reason
25. Classify the following into fixed cost and variable cost :
(a) Rent for shed (b) Minimum telephone bill
(c) Cost of raw materials (d) Wages to permanent staff
(e) Interest on capital (f) Payment for transportation of goods.
(g) Daily wages (h) Telephone charges beyond the minimum

Wishing You All The Best

Remember You Can Do Wonders , Nobody Can Stop You From Achieving Success Except You
Get Up and Keep Going, World Is Waiting For You
— Tandon Commerce Academy
Believe me it’’ll work. So be ready to face such situations
 Test 2 – Theory of Cost
Saturday, October 8, 2016
Total marks : 30 Time Allowed : 1 hour 30 minutes

All questions are compulsory

Attempt All the questions in serial order
Q No. 1 to 10 carries 3 marks each

1. Draw Average Total Cost, Average variable Cost and Marginal Cost in a single diagram. Also explain the relation
between marginal cost and average total cost with its help.
2. Distinguish between fixed costs and variable costs. Explain the relationship between marginal cost and average
cost.
3. Explain the relationship between ATC, AVC and MC with a suitable illustration.
4. “Increasing and decreasing returns to scale respectively imply downward and upward sloping portion of the long
run average cost curves”. Defend or refute.
5. Distinguish between fixed and variable costs. Why is short run average cost curve of a firm U–shaped?
6. Why short run average cost curve of a firm is U–shaped? Explain.
7. Explain the relationship between AC and MC. Can the average cost curve fall when MC curve is rising? Explain it
with the help of a diagram.
8. Complete the following table :
Output (units) TFC TC ATC MC AFC
0 8 – – – 8
1 – – – 12
2 – – – 10
3 – – – 8
4 – – – 6
5 – – – 5
9. Complete the following table if the AFC at one unit of production is Rs.60.
Output 1 2 3 4 5 6 7 8
TC 90 105 115 120 135 160 200 260
TVC
TFC
AVC
AFC
ATC
MC
10. A firm’s fixed cost is Rs.2000. Complete the TVC, AVC, TC and ATC from the following table :
Output (units) 1 2 3 4 5 6 7
Marginal cost 2000 1500 1200 1500 2000 2700 3500