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Business Economics · Class 12 Commerce

Ch 3Production and Cost Analysis — Class 12 Business Economics, concept-first.

For an Odisha CHSE +2 Commerce Business Economics student, production analysis explains the physical side of a firm's activity — how inputs (factors of production) are turned into output — while cost analysis attaches money values to that same activity.

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Key concepts

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The Production Function

A production function is a technological relationship showing the maximum output obtainable from each combination of inputs, given technology, measured in physical (not money) units.

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In previous exams

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CA Foundation

2 concepts · 20 appearances

2026, 2025, 2024

Chapter contents

The NCERT structure, section by section. Open a section to see its questions, then read the concept-first solution.

1

The Production Function — Short Run and Long Run

For an Odisha CHSE +2 Commerce Business Economics student, production analysis explains the physical side of a firm's activity — how inputs (factors of production) are turned into output — while cost…

2

Law of Variable Proportions — Returns to a Variable Factor

The Law of Variable Proportions describes what happens to output in the short run when the quantity of one variable factor is increased while all other factors are held fixed.

3

Returns to Scale — The Long Run

In the long run there are no fixed factors — the firm can change the quantity of every input. Returns to scale studies how total output responds when all factors are increased together in the same pro…

4

Cost Concepts

Cost analysis prices out the production relationships of the previous sections. Several different meanings of 'cost' are used, and the Business Economics paper expects a student to distinguish them cl…

5

Cost Curves and Their Relationships

The per-unit cost curves and the way they relate to one another are the most heavily examined part of this chapter.

Exercises

+Show 8 questions8 questions
  1. Q7Explain what a production function is, and distinguish between the short run and the long run in production analysis.Free
  2. Q8State the Law of Variable Proportions and briefly describe its three stages.Free
  3. Q9Distinguish between returns to a factor and returns to scale.Free
  4. Q10(MCQ) When Total Product is at its maximum, Marginal Product is: (a) also at its maximum (b) equal to Average Product (c) zero (d) negativePreview
  5. Q11(MCQ) Average Total Cost (AC) is equal to: (a) $AFC - AVC$ (b) $AFC + AVC$ (c) $AVC - AFC$ (d) $MC + AFC$Preview
  6. Q12(MCQ) Which of the following costs declines continuously as output rises, approaching but never touching the output axis? (a) Marginal Cost…Preview
  7. Q13A firm's Total Fixed Cost is Rs 120. Find its Average Fixed Cost when output is (i) 8 units and (ii) 24 units, and state what happens to AFC…Preview
  8. Q14Why does the Marginal Cost curve cut the Average Variable Cost and Average Total Cost curves at their minimum points? Also explain why it cu…Preview

Sample & Board Papers

Sample papers and previous-year board questions for this subject.

+Show 22 questions22 questions
  1. Q1When marginal product is zero, what happens to the total product? (a) Zero (b) Maximum (c) Declines (d) IncreasesPreview
  2. Q2Production means (a) Creation of utility having exchange value (b) Satisfaction of human wants (c) Creation of matter (d) Making factors mor…Preview
  3. Q3Which one of the following is the variable cost of a firm? (a) Cost of the machine (b) Cost of the factory building (c) Salary of the manage…Preview
  4. Q4Examine the correctness of the following statement. Correct it if necessary, without changing the portion underlined : In the long run all f…Preview
  5. Q5Examine the correctness of the following statement. Correct it if necessary, without changing the portion underlined : Cost per unit of outp…Preview
  6. Q6Answer within 30 words : What is implicit cost?Preview
  7. Q7Distinguish between (limit your answer to 50 words) : Form utility and Place utility.Preview
  8. Q8Distinguish between (limit your answer to 50 words) : Money cost and Real cost.Preview
  9. Q9Explain the Law of Variable Proportions.Preview
  10. Q10Economic cost is explicit cost plus : (a) Variable cost (b) Marginal cost (c) Average cost (d) Implicit costPreview
  11. Q11In the long-run : (a) All factors of production are variable (b) All factors of production are fixed (c) Some factors of production are fixe…Preview
  12. Q12Costs which change when output changes are : (a) Fixed cost (b) Variable cost (c) Opportunity cost (d) None of thesePreview
  13. Q13Examine the correctness of the following statement and correct it if incorrect, without changing the underlined portion : Land is a variable…Preview
  14. Q14Examine the correctness of the following statement and correct it if incorrect, without changing the underlined portion : Money cost is pain…Preview
  15. Q15Examine the correctness of the following statement and correct it if incorrect, without changing the underlined portion : Salary of the watc…Preview
  16. Q16Examine the correctness of the following statement and correct it if incorrect, without changing the underlined portion : When output increa…Preview
  17. Q17What is short run production function ?Preview
  18. Q18What do you mean by implicit cost ?Preview
  19. Q19What do you mean by Average Variable cost ?Preview
  20. Q20Distinguish between : Fixed Cost and Variable CostPreview
  21. Q21Distinguish between : Accounting Cost and Economic CostPreview
  22. Q22Distinguish between : Increasing returns and diminishing returnsPreview

More questions

+Show 6 questions6 questions
  1. Example 1A firm employs labour ($L$) as its only variable factor on a fixed plot of land. The total product schedule is: $L=1 \to TP=10$; $L=2 \to TP…Free
  2. Example 2Using the same schedule as Worked Example 1, state at which level of labour Average Product is maximum, and verify the relationship between…Free
  3. Example 3A firm's Total Fixed Cost is Rs 60. Its Total Variable Cost schedule is: $Q=1 \to TVC=30$; $Q=2 \to 50$; $Q=3 \to 66$; $Q=4 \to 88$; $Q=5 \t…Preview
  4. Example 4From the cost schedule in Worked Example 3, identify the output at which Average Variable Cost is minimum, and verify the relationship betwe…Preview
  5. Example 5An owner runs a small workshop. During the year she pays Rs 4,00,000 in wages, Rs 1,50,000 for raw materials and Rs 50,000 as rent to an out…Preview
  6. Example 6A firm uses 10 workers and 5 machines to produce 100 units of output. It then doubles both inputs to 20 workers and 10 machines and finds ou…Preview