Which of the following statements are true or false? Give valid reasons in support of your answer. (a) Average cost curve cuts Average variable cost curve, at its minimum level. (b) Average product curve and Marginal product curve are 'U-shaped' curves. (c) Under all market condi

Question

Which of the following statements are true or false? Give valid reasons in support of your answer. (a) Average cost curve cuts Average variable cost curve, at its minimum level. (b) Average product curve and Marginal product curve are 'U-shaped' curves. (c) Under all market conditions, Average revenue and Marginal revenue are equal to each other. (d) Total cost curve and Total variable cost curve are parallel to each other. OR Explain a firm's equilibrium under perfect competition, using a hypothetical schedule.

Accepted Answer

> [!TLDR]
> Part (a): (i) False — MC (not AC) cuts AVC at min AVC; (ii) False — AP and MP are inverted-U; (iii) False — AR = MR only under perfect competition; (iv) True — TC and TVC differ by the constant TFC, so they are parallel.
> Part (b): A perfectly competitive firm's equilibrium is where $MR = MC$ (MC rising); in the schedule, $Q = 4$ units at ₹10.

## Part (a)

**(i) "Average cost curve cuts Average variable cost curve at its minimum level." — False.**
$AC = \frac{TC}{Q} = AFC + AVC$. Because AFC is always positive, AC lies **above** AVC at every output and the two curves never intersect (they only get closer as AFC shrinks). The marginal curve always cuts the average at the average's minimum: **MC cuts AVC at the minimum of AVC**, and **MC cuts AC at the minimum of AC**.

**(ii) "Average product and Marginal product curves are U-shaped." — False.**
Under the law of variable proportions, AP and MP first **rise** (increasing returns), reach a **maximum**, then **fall** (diminishing returns). This gives an **inverted-U (∩) shape**, the mirror image of the U-shaped cost curves. (When MP is at its maximum, MC is at its minimum.)

**(iii) "Under all market conditions, AR = MR." — False.**
$AR = \frac{TR}{Q} = P$. Whether $AR = MR$ depends on the demand curve:

| Market structure | Demand curve | AR vs MR |
|---|---|---|
| Perfect competition | Horizontal (perfectly elastic) | $AR = MR = P$ |
| Monopoly / monopolistic / oligopoly | Downward-sloping | $MR < AR$ |

Under imperfect competition, selling one more unit requires lowering price on all units, so MR falls faster than AR. Hence $AR = MR$ **only** under perfect competition.

**(iv) "Total cost and Total variable cost curves are parallel." — True.** …

Cost	Symbol	Definition
Total Fixed Cost	TFC	Cost that does not change with output (rent, insurance, interest on loans)
Total Variable Cost	TVC	Cost that changes with output (raw materials, wages of daily workers, electricity)
Total Cost	TC	$TC = TFC + TVC$

Q.Which of the following statements are true or false? Give valid reasons in support of your answer.

Part (a)Concept understanding — Cost Concepts

Cost Concepts: From Everyday Intuition to Economic Precision

The Core Idea: Opportunity Cost

Explicit vs Implicit Costs

Total, Average, and Marginal Costs

Total Cost (TC)

Average Cost (AC)

Marginal Cost (MC)

Short-Run vs Long-Run Costs

Short-Run Cost Categories

The Shape of the Curves

Part (b)Concept understanding — Profit Maximization Condition

The Profit Maximisation Condition: Why Firms Produce What They Do

The Core Intuition

What Each Symbol Means

Why the Condition Holds — A Simple Proof

A Diagram in Words

Why This Matters for Exams …

Part (a)

Part (a)

Market structure	Demand curve	AR vs MR
Perfect competition	Horizontal (perfectly elastic)	$AR = MR = P$
Monopoly / monopolistic / oligopoly	Downward-sloping	$MR < AR$

Q.Which of the following statements are true or false? Give valid reasons in support of your answer.

Part (a)

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