UNIT-III BEFA Notes.

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A ANTHI INSTITUTE OF ENGINEERING& TECHNOLOGY

GUNTHAPALLY (V), HAYAT NAGAR (M), R. R (D) – 501512


Subject Name : Business Economics & Financial Analysis
Subject Code : SM504MS
Program/Course : B.Tech
Year/Semester : III-I (R-18)
Branch : ECE
Section : A&B
Academic Year : 2021 – 2022
Subject Faculty : Dr. N. RAMANA REDDY, Associate Professor.
M.Tech, MBA, Ph.D

Unit-III: Production, Cost, Market Structures & Pricing


Production Analysis: Factors of Production, Production Function, Production Function with
one variable input, two variable inputs, Returns to Scale, Different types of Production
Functions.
Cost Analysis: Types of Costs, Short run and Long run Cost Functions.
Market Structures: Nature of Competition, Features of Perfect competition, Monopoly,
Oligopoly, and Monopolistic Competition.
Pricing: Types of Pricing, Product Life Cycle based Pricing, Break Even Analysis, Cost
Volume Profit Analysis.
Production Analysis:-
The theory of production (or) production analysis deals with the general relationship of
output of goods with the factors of inputs. Production is a continuous activity of transforming
the inputs into outputs. It involved the step-by-step conversion process.
According to Michael defines production function as “that function which defines the
maximum amount of output that can be produced with a given set of inputs”.
Production process consist of 3 steps are following ;
(1). Inputs (Requirement Recourses)
(2). Conversion process (Technical knowledge)
(3). Outputs (Goods or Services)
The following diagram represents the production process ;

Figure: The Steps of production process


The production analysis includes the following are ;
 Cost-Output relation under short run period.
 Cost-Output relation under long run period.
 Production Function with One Variable Input
 Production Function with Two Variable Input
Factors of Production:-
The production function expresses a functional relationship between physical inputs and
physical outputs of a firm at particular time period and cost. The output is thus a function of
inputs.
There are 4 important factors of production ;
1. Land, 2. Labor 3. Capital 4. Entrepreneurship.

Production is a process in which economic resources or inputs (natural resources like land,
labour and capital equipments) are combined by entrepreneurs to create economic goods and
services (also referred to as outputs or products).

Figure: 4 Factors of Production


Production Function:-
“The production function is defining the maximum amount of output that can be
produced/obtained from a given set of inputs”.
(or)
“Production Function is the technological relationship which explains the quantity of
production that can be produced by a certain group of inputs.
It is expressed as mathematically,
Output
Production = ---------
Input
Mathematically production function can be written as ;
Q = F(L1, L2, C, O, T)
Where;
Q is the quantity of production,
F explains the functions that are the type of relation between inputs and outputs.
L1, L2, C, O, T refer to Land, Labor, Capital, Organization and technology
respectively.
Production function can be classified in two types;
1. The Short-run production function
2. The Long-run production function

1.) The Short-run production function:-


The functional relationship of the maximum quantity of a goods or services that can be
produced by a set of inputs, it involving at least one of the inputs used in production process is
known as short-run production function.
A short-run production function is refers to when only one input variable is used and other
inputs are constant.
The short-run production function can be mathematically expressed as follows ;
Q = f (L, C, M)
Where,
Q = Quantity of Outputs produced
L = labor
C = Capital
M = Material
2.) The Long -run production function:-
The functional relationship of the maximum quantity of a goods or services that can be
produced by a set of inputs, it involving all inputs used in production process is known as
long-run production function.
A long-run production function is change output, when all input variables are used in
production of goods is changed.
The long -run production function can be mathematically expressed as follows ;
Q = f (Lb, L, C, M, T, t)
Where,
Q = Quantity of Outputs produced
Lb= Land and building
L = Labor
C = Capital
M = Material
T = Technology
t = time period of production.
Production Function with one variable input:-
The laws of returns states that when at least one factor of production is fixed or factor input is
fixed and when all other factors are varied, the total output in the initial stages will increase at
an increasing rate, and after reaching certain level or output the total output will increase at
declining rate.
Q = f (L)
If variable factor inputs are added further to the fixed factor input, the total output may
decline. This law is of universal nature and it proved to be true in agriculture and industry also.
The law of returns is also called the law of variable.
It involving 3 important Steps are as following ;
1. Total Product (TP)
2. Marginal Product (MP)
3. Average Product (AP)
There are 3 Stages of law of variables are as following ;
Stage – I: Law of Increasing Returns
Stage – II: Law of Diminishing Returns
Stage – III: Law of decreasing Returns

Units of Total Marginal Average


labour Product Product Product Stages
(TP) (MP) (AP)
0 0 0 0
1 10 10 10 Stages I
2 22 12 11
3 33 11 11
4 40 7 10 Stages II
5 45 5 9
6 48 3 8
7 48 0 6.5 Stages III
8 45 -3 5.6

Let us consider an example of short run production function with one variable input labour(L).
Production Function with two variable inputs:-
Production process that requires two inputs, capital(C) and labour(L) to produce a given
output (Q). There could be more than two inputs in a real life situation.
The production function based on two inputs can be expressed as ;
Q = f(C, L)
Where:
f = function of
C = Capital,
L = Labour.
Production Functions with Two Variable Factors: Isoquants.
For the analysis of production function with two variable factors we make use of the concept
called Isoquants. We explain the production function with two variable factors and returns to
scale, we shall explain the concept of isoquants (that is, equal product curves) and their
properties.

Isoquants:-
The term Isoquants is derived from the words ‘Iso’ and ‘quant’. ‘Iso’ means equal and
‘quent’ means quantity. Isoquant therefore, means equal quantity. Isoquant curves show
various combinations of two input variable factors such as Capital and Labour. Therefore, an
Isoquant represents a constant quantity of output.
As an isoquant curve represents all such combinations which yield equal quantity of output,
any or every combination is a good combination for the manufacturer. Since he prefers all
these combinations equally, an isoquant curve is also called product indifferent curve.
An Isoquant may be explained with the help of an arithmetical example ;

Figure: Isoquant Curve with example.


Features of Isoquant:-
 Downward sloping
 Convex to origin
 Do not intersect
 Do not axis.
Isocost:-
Isocost line shows all combinations of inputs which cost the same total amount. It gives the
maximum level of output that can be produced for a given total cost of inputs.
An Isocost line is a graphical representation of various combinations of two factors (labor and
capital).

Figure: Isocost Curve

Returns to Scale:-
The law of returns to scale describes the relationship between variable inputs and output when
all the inputs or factors are used. The law of returns to scale analysis the effects of scale on the
levels of output.
There are three possible types of laws of Returns to scale:
(1) Law of Increasing Returns to Scale
(2) Law of Constant Returns to Scale
(3) Law of Decreasing Returns to Scale
(1) Law of Increasing Returns to Scale:
If the output of a firm increases more than in proportion to an equal percentage increase in all
inputs, the production is said to exhibit increasing returns to scale.
(2) Law of Constant Returns to Scale:
When all inputs are increased by a certain percentage, the output increases by the same
percentage, the production function is said to exhibit constant returns to scale.
(3) Law of Decreasing Returns to Scale:
The term 'diminishing' returns to scale refers to scale where output increases in a smaller
proportion than the increase in all inputs.
Internal and External Economies of Scale:
Economies of scale are of two types :
1. Internal Economies of Scale
2. External Economies of Scale
Internal Economies of Scale:-
Internal Economies refer to the economies introduction costs which accrue to the firm alone
when it expands its output. The following are the sources of Internal Economies of Scale ;
 Managerial Economics
 Commercial Economics
 Financial Economics
 Technical Economies
 Marketing Economies
 Risk Bearing Economies
 Economics of Larger Advertising

External Economies of Scale:-


External economies of scale occur outside of an individual company but within the same
industry. External economies of scale occur outside of a firm but within an industry.
The following are the sources of External Economies of Scale ;
 Economies of Concentration
 Economics of Research And Development
 Economics of Welfare
 Economics of Transport Network.

Different types of Production Functions:-


There are 3 Types of Production Functions are;
1) Cobb Douglas Production Function
2) Leontief Production Function
3) CES Production Function (CES stands for Constant Elasticity Substitution).

1) Cobb Douglas production function:-


The Cobb Douglas production function, it studies the relation between the input and the
output.
The Cobb Douglas production function is that type of production function wherein an input
can be substituted by others to a limited extent. For example, capital and labor can be used as a
substitute of each other, but to a limited extent only.
Cobb-Douglas production function can be expressed as follows:
Q = AKaLb
or
Q = AKaL1-a
Where ;
Q = Quantity of output product
K = Capital
L = Labor
A = Positive constant
a and b = positive fractions.
b = 1 – a.
2) Leontief Production Function:-
Leontief production function uses fixed proportion of inputs having no substitutability
between them. It is regarded as the limiting case for constant elasticity of substitution.
Q = min (Z1/a, Z2/b)
Where, Q = Quantity of output produced
Z1 = utilized quantity of input 1
Z2 = utilized quantity of input 2
a and b = constants.
3) CES Production Function:-
CES stands for Constant Elasticity Substitution.
CES production function shows a constant change produced in the output due to change in
input of production.
Q = A [aKβ + (1-a) L-β]-1/β

Cost Analysis: Types of Costs, Short run and Long run Cost Functions.
The institute of cost and management accountants (ICMA) has defined cost as “the amount
expenditure of product cost”. It refers to the study of product cost in relation to price of factors
of production. Every company management is reduced minimum production cost and
maximum profits.
Profit = Total revenue – Total cost.

Types of Costs: - The following are the various types of costs ;


1). Fixed Costs (FC) Vs Variable Costs (VC)
Fixed Costs (FC) the costs which don’t vary with changing output. Fixed cost is that cost
which remains constant for a certain level to output. It is not affected by the changes in the
volume of production. Ex: Fixed cost includes salaries, Rent, Administrative expenses
depreciations etc.
Variable Costs (VC) the cost which depends on the output produced. Variable cost is that
which varies directly with the variation is output. An increase in total output results in an
increase in total variable costs and decrease in total output results in a proportionate decline in
the total variables costs. Ex: Raw materials, labor, direct expenses, etc.

2). Total Costs (TC), Average Costs (AC), Marginal Costs (MC)
Total Costs (TC) = Fixed + Variable Costs
3). Short-run cost and Long-run cost.
4). Opportunity cost and Actual cost.
5). Explicit cost and Implicit cost.
6). Sunk cost and Incremental cost.
7). Direct cost and Indirect cost.
8). Historical cost and Replacement cost.
9). Accounting cost and Economic cost.
10). Private cost and Social cost.

Cost Function:-
The cost function is defining the relationship between cost and its determinants such as the
size of plant (factory or company), level of output, input prices, technology, efficiency of
management etc..
Cost Function can be expressed as mathematically as follows ;
C = f (S, O, P, T, E)
Where ;
C = Cost
F = function of
S = Size of Plant
O = Output level
P = Price of inputs
T = Technology
E = Efficiency of Management.
The cost function is the relationship between input and output. The cost output functions can
be classified into two types;
(1). Short-run Cost Function
(2). Long-run Cost Function

(1). Short-run Cost Function:-


The short run the levels of usage of some input are fixed and some inputs are
variables/changes with the level of output produced by the firm during that time period.
Short-Run Cost is represented 3 types of Curves ;
i) Total Cost (TC)
 TC = Total Fixed Cost (TFC) + Total Variable Cost (TVC)
Short-run Total cost Curve (STC)
ii) Average Cost (AC)
 Average Total Cost (ATC)
 Average Variable Cost (AVC)
 Average Fixed Cost (AFC)
iii) Marginal Cost (MC)
The following figure represented various short-run cost curves based on TC, AC, and MC.

Fig: Short-run total costs curves Fig: Short-run average & marginal costs curves
From the above graphical representations we observed that average fixed cost continuously
falls over the whole range of output. Since ATC = AFC + AVC, the vertical distance
be-tween average total cost and average variable cost measures average fixed cost. Since AFC
declines over the entire range of output. AVC becomes closer and closer to ATC as output
increases.
(2). Long-run Cost Function:-
In the long run, all the factors (inputs) of production used by an organization. The existing size
of the plant or building can be increased in case of long run. There are no fixed inputs or costs
in the long run. Long run is a period in which all the costs change as all the factors of
production are variable.
Long-Run Cost is represented 3 types of Curves ;
i) Long run Total Cost (LTC)
ii) Long run Average Cost (LAC)
iii) Long run Marginal Cost (LMC)
The following figure represented various Long-run cost curves based on LTC, LAC, and
LMC.

Fig: Long-run total costs curves Fig: Long-run average & marginal costs curves
Therefore, LTC ≤ STC curves.
From the above graphs point A, B, and C, respectively; then they would intersect SMC curves
at P, Q, and R respectively. By joining P, Q, and R, the LMC curve would be drawn.
Market Structures: Nature of Competition, Features of Perfect competition,
Monopoly, Oligopoly, and Monopolistic Competition.
Market is a place where buyer and seller meet, goods and services are offered for the sale and
transfer of ownership occurs. A market may be also defined as the demand made by a certain
group of potential buyers for a goods or service.

Market Structure is a set of market characteristics that determine the nature of market. Market
Structure refers to the large no of activities and distribution of buyers and sellers in the market
for a goods or services.
Nature of Competition:-
Market Structure deals with the selected no of characteristics through buyers and sellers.
Market Structure different conditions in their own situations, different Market Structures
affects the behavior of buyers and sellers.
Market Structures:-
Market structure describes the competitive environment in the market buyers and sellers for
any good or service.

There are 2 types of Market Structures are as following ;


1. Perfect Competition
2. Imperfect Competition

Figure: Types of Market Structures

Types of Market Structures: Perfect competition, Monopoly, Oligopoly, and Monopolistic Competition.
Perfect competition:-
Definition:- Perfect competition is a market with a very large number of buyers and sellers.
The market with perfect competition conditions is known as perfect market. The good market
conditions are favorable to promote business. The good market nature is called Perfect
competition.

Features of Perfect competition:-


The following are the main features / characteristics of Perfect competition ;
1) A large number of buyers and sellers
2) Homogenous products or services
3) Prefect information available to the buyers and sellers with respect to price, quantity
and demand of products.
4) There is free entry and exit from the market, i.e. there are no barriers.
5) Each firm is independent actions and activates.
6) Perfect mobility of factors of production.
7) No publicity cost.
8) All firms only have the motive of profit maximization
Imperfect Competition:-
Definition:- Imperfect Competition is a market with limited number of buyers and sellers.
The market conditions do not exist in the market is considered as Imperfect competition.
The following are the different forms of Imperfect market competition ;
 Monopoly
 Oligopoly
 Monopolistic Competition

Monopoly:-
The word monopoly is made up of two syllables, Mono and poly. ‘Mono’ means single and
‘poly’ means seller.

The Monopoly means a single firm will control the entire market. Monopoly is a form of
market organization in which there is only one seller of the products. There are no close
substitutes for the products sold by the seller.

According to Watson, “Monopoly is the only one producer controls of products in the entire
market that has no close substitutes for the products”.

Features of Monopoly:-
The following are the main features / characteristics of Monopoly;
1) Single Seller
2) No close substitutes
3) No entry
4) Large number of Buyers
5) Price level
6) Legal rights and patent rights.

Oligopoly:-
Oligopoly is derived from Greek words ‘Oligos’ and ‘poly’.
‘Oligos’ means a few and ‘poly’ means seller.

Definition:- Oligopoly is market situation in which each of a small number of interdependent


products, but it does not control entire market. Oligopoly is the market products may be either
homogeneous or differentiation.
Features of Oligopoly:-
The following are the main features / characteristics of Oligopoly;
1) Small number of producers/sellers
2) Products may be either homogeneous or differentiation.
3) Restrictions to entry
4) Price level
5) Advertisement
6) Constant struggles

Monopolistic Competition:-
The market structure in which a large number of firms selling few differentiate products is
called Monopolistic Competition. It is a market situation there are a large number of buyers
and sellers selling closely related.
Example: There are many toothpaste available in the market, these are closely related goods,
but different size, quality, color, taste etc.

Features of Monopolistic Competition:-


The following are the main features / characteristics of Monopolistic Competition;
1) Existence of Many firms

2) Product Differentiation

3) Large Number of Buyers

4) Free Entry and Exist of Firms

5) Selling costs

6) Imperfect Knowledge

7) The Group of products similar but not same


Pricing: Types of Pricing, Product Life Cycle based Pricing, Break Even Analysis,
and Cost Volume Profit Analysis.
A price is a value, money paid by the buyers for exchange of goods and services, the amount
of money received by the firm for selling the product to the costumer. The process of
exchanging price for a goods or services is called pricing. It is an important tool of the firm
because it generates revenue to the firm.

Types of Pricing:-
The following are the different types of pricing ;
1. Cost – Based Pricing
2. Competition – Oriented Pricing
3. Demand – Oriented Pricing
4. Strategy – Based Pricing

Product Life Cycle based Pricing (PLC):-


The product life cycle describe the period of time over which an item is developed to market
and removed from the market.
The product life cycle contains four stages: introduction, growth, maturity and decline. Each
stage is associated with changes in the product's marketing strategy position. You can use
various marketing strategies in each stage to try to prolong the life cycle of your products.
The product life cycle has 4 very clearly defined stages, each with its own characteristics that
mean different things for business that are trying to manage the life cycle of their particular
products.

The different stages of Product Life Cycle (PLC) based Pricing contains four stages:
1) Introduction
2) Growth
3) Maturity
4) Decline
The following diagram represents the PLC stages with the life of a product in the markets;

Figure: Stages of Product Life Cycle

1) Introduction Stage: - It refers to the initial stage where an organization creates awareness
to the customers for the new product. The sales of the organization during this period are
constant. It is also called as Product development stage.
2) Growth Stage:- The growth stage is typically characterized by a strong growth in sales
and profits, and because the company can start to benefit from economies of scale in
production, the profit margins, as well as the overall amount of profit, will increase. This
makes it possible for businesses to invest more money in the promotional activity to maximize
the potential of this growth stage.
3) Maturity Stage: - During the maturity stage, the product is established and the aim for the
manufacturer is now to maintain the market share they have built up. This is probably the most
competitive time for most products and businesses need to invest wisely in any marketing they
undertake. They also need to consider any product modifications or improvements to the
production process which might give them a competitive advantage.
4) Decline Stage: - Eventually, the market for a product will start to shrink, and this is what’s
known as the decline stage. This shrinkage could be due to the market becoming saturated (i.e.
all the customers who will buy the product have already purchased it), or because the
consumers are switching to a different type of product.

Break Even Analysis(BEA) or Break Even Point (BEP):-


A business is said to break even when its total sales are equal to its total costs. It is a point of
No Profit No Loss. Break even analysis is defined as analysis of costs and their possible
impact on revenues and volume of the firm. Hence, it is also called the cost – volume- profit
(CVP) analysis. A firm is said to attain the BEA when its total revenue is equal to total cost.
BEA is known as Break Even Point (BEP) and it is also known as Cost – Volume Profit
(CVP) analysis. It is defined as a point of activity where total revenue is equal to total
expenses.
The following are the key terms used in Break Even Analysis ;
 Fixed Cost (FC)
 Variable Cost (VC)
 Total Cost (TC)
 Total Revenue (TC)
 Contribution (C)
 Margin of safety
 P/V ratio (Cost - Volume)
 Angle of incidence

Assumptions of Break Even Analysis:-


The following are the some basic Assumptions of Break Even Analysis ;
1. All costs are classified into two – fixed and variable.
2. Fixed costs remain constant at all levels of output.
3. Variable costs vary proportionally with the volume of output.
4. Selling price per unit remains constant in the volume of production.
5. There will be no change in operating efficiency.
6. There will be no change in the general price level.
7. Volume of production is the only factor affecting the cost.
8. Volume of sales and volume of production are equal.
The following graphical diagram representations of BEP or BEA explain the interrelationship
between FC, VC, TC, Sales and Profits at different levels. It shows profit or loss at various
levels of activities.

Figure: Break Even Analysis Diagram

Here, Break Even Point: TR=TC Loss Area: TR<TC Profit Area: TR>TC
Significance of BEA:-
To ascertain the profit on a particular level of sales volume or a given capacity of production.
To calculate sales required to earn a particular desired level of profit.
To compare the product lines, sales area, and methods of sales for individual company
To compare the efficiency of the different firms.
To decide whether to add a particular product to the existing product line or drop one from it.
To decide to “make or buy” a given component or spare part.
To decide what promotion mix will yield optimum sales.

Limitations of BEA:-
Break – even - point is based on fixed cost, variable cost and total revenue.

A change in one variable is going to affect the BEP.


All cost cannot be classified into fixed and variable costs.
In case of multi-product firm, a single chart cannot be of any use.
It is based on fixed cost concept and hence holds good only in the short – run.
Total cost and total revenue lines are not always straight as shown in the figure.
Where the business conditions are volatile, BEP cannot give stable results.

The BEA or BEP can be calculated by the following two formulas based on problem
calculation ;
1. BEA in Units.
BEA = FC / Contribution (C)
2. BEA in Sales.
BEA = [FC / Contribution (C)] x sales
Here,
Contribution = Sales – Variable cost
Contribution = Fixed Cost + Profit.

Angle of incidence: This is the angle between sales line and total cost line at the Break-even
point. It indicates the profit earning capacity of the concern. Large angle of incidence indicates
a high rate of profit a small angle indicates a low rate of earnings.

Cost Volume Profit Analysis:-


Cost Volume Profit Analysis is also known as Break Even Analysis. It is a financial model
that shows how changes in sales volume and cost will affect profits. CVP analysis helps the
management in finding out the relationship of cost and profits.

The CVP analysis has some strong factors are;


 Volume of production
 Internal & External efficiency
 Methods of production
 Size of plant
 Profits depend on numbers of sales.
The following diagrams represent the CVP analysis, it is related to the BEP concepts.

Figure: Cost Volume Profit Analysis Diagram


The CVP analysis is also use to calculate the BEP in production process and sales. The BEP is
drawn on the CVP analysis where the sales, F.C, and V.C lines are intersect. This is a key
point because the management that the revenue from a project after the BEP to increases the
profits.
Important Questions
1. Define production function, explain is equate and is cost curves.
2. Why does the law of diminishing returns operate? Explain with the help of a diagram.
3. Explain and illustrate Law of Returns to scale.
4. (a) Explain Cobb-Douglas Production function.
(b) Internal and External Economies
5. Explain the following with reference to production functions
(a) Isoquants
(b) Isocosts
6. Explain Cost/Output relationship in the short run.

7. What is a market? Explain, in brief, the different market structures.

8. Define monopoly. How is price under monopoly determined?

11. Describe the BEP with the help of a diagram and its uses in business decision making

12. What cost concepts are mainly used for management decision making? Illustrate.

13. Explain the various methods of strategy-based pricing.

14. Explain different Characteristics of Oligopoly?

15. A Company reported the following results for two period Sales Profit I Rs. 20,00,000 Rs. 2,00,000

II Rs. 25,00,000 Rs. 3,00,000 Ascertain the BEP, PV ratio, fixes cost and Margin of Safety.
16. If sales in 10000 units and selling price Rs. 20/- per unit. Variable cost is Rs. 10/- per unit and

fixed cost is Rs. 80000. Find out BEP in Units and sales revenue what is profit earned? What should

be the sales for earning a profit of Rs. 60000/-

17. Sales are 1, 10,000 producing a profit of Rs. 4000/- in period I, sales are 150000 producing a profit
of Rs. 12000/- in period II. Determine BEP & fixed expenses.
Objective Questions
1. Conversion of inputs in to output is called as _________________ ( )

(a) Sales (b) Income (c) Production (d) Expenditure

2. How many stages are there in ‘Law of Variable Proportions’? ( )

(a) Five (b) Two (c) Three (d) Four

3. When a firm expands its Size of production by increasing all factors, It secures certain advantages,

known as ( )

(a) Optimum Size (b) Diseconomies of Scale (c) Economies of Scale (d) None

4. When producer secures maximum output with the least cost combination of factors of production, it

is known as_______ ( )

(a) Consumer’s Equilibrium (b) Price Equilibrium (c) Producer’s Equilibrium (d) Firm’s Equilibrium

5. The ‘Law of Variable Proportions’ is also called as ____________. ( )

(a) Law of fixed proportions (b) Law of returns to scale (c) Law of variable proportions (d) None

6. _________ Is a ‘group of firms producing the same are slightly Different products for the same

market or using same raw material’. ( )

(a) Plant (b) Firm (c) Industry (d) Size

7. When proportionate increase in all inputs results in an equal Proportionate increase in output, then

we call____________. ( )

(a) Increasing Returns to Scale (b) Decreasing Returns to Scale (c) Constant Returns to Scale (d) None

8. When different combinations of inputs yield the same level of output Known as ___________. ( )

(a) Different Quants (b) Output differentiation (c) Isoquants (d) Production differentiation

9. When Proportionate increase in all inputs results in more than equal Proportionate increase in

output, then we call _____________. ( )

(a) Decreasing Returns to Scale (b) Constant Returns to Scale (c) Increasing Returns to Scale (d) None
10. When Proportionate increase in all inputs results in less than Equal Proportionate increase in

output, then we call _____________. ( )

(a) Increasing Returns to Scale (b) Constant Returns to Scale (c) Decreasing Returns to Scale (d) None

11. A curve showing equal amount of outlay with varying Proportions of Two inputs are called

________________. ( )

(a) Total Cost Curve (b) Variable Cost Curve (c) Isocost Curve (d) Marginal Cost Curve

12. The cost of best alternative forgone is_______________ ( )

(a) Outlay cost (b) Past cost (c) Opportunity cost (d) Future cost

13. If we add up total fixed cost (TFC) and total variable cost (TVC), we get__ ( )

(a) Average cost (b) Marginal cost (c) Total cost (d) Future cost

14. _____cost is the additional cost to produce an additional unit of output. ( )

(a) Incremental (b) Sunk (c) Marginal (d) Total

15. _______ costs are the costs, which are varies with the level of output. ( )

(a) Fixed (b) Past (c) Variable (d) Historical

16. The price of a product is determined by the ______of that product ( )

(a) Place and time (b) Production and sales (c) Demand and supply (d) Cost and income

17. The price at which demand and supply of a commodity equal is ( )

(a) High price (b) Low price (c) Equilibrium price (d) Marginal price

18. _________is a form of market organization in which there is only one seller of the commodity. ( )

(a) Perfect Competition (b) Duopoly (c) Monopoly (d) Oligopoly

19. The firm is said to be in equilibrium, when it’s Marginal Cost (MC) Equals to___ . ( )

(a) Total cost (b) Total revenue (c) Marginal Revenue (d) Average Revenue

20. Charging very high price in the beginning and reducing it gradually is called ( )

(a) Differential pricing (b) Sealed bid pricing (c) Skimming pricing (d) Penetration pricing

****** All the Best ******


Prepared by,
Dr. N. RAMANA REDDY
M.Tech, MBA, Ph.D
Associate Professor.
Ph. No: 9640789300

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