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Economics · Class 11 Commerce

Ch 4Cost and Revenue Analysis — Class 11 Economics, concept-first.

Every act of production uses up scarce resources, and the value of the resources used up in producing a good or service is called its cost of production. Economists, however, look at cost more broadly than an accountant does, because a firm's true cost includes not only what it actually pays out in money, but also the…

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Key concepts

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Long-Run Average Cost – The Envelope Curve

In the long run, plant size itself becomes variable, so a firm can choose among many possible short-run average cost (SAC) curves.

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Chapter contents

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

1

Meaning and Concepts of Cost

Every act of production uses up scarce resources, and the value of the resources used up in producing a good or service is called its cost of production.

2

Short-Run Cost Concepts: TFC, TVC and TC

The short run is the period in which at least one factor of production — typically the size of plant, machinery or building — is fixed, while other factors such as labour and raw material can still be…

3

Short-Run Average and Marginal Cost: AFC, AVC, ATC and MC

Dividing each of the total cost measures by output gives the corresponding AVERAGE cost, and the addition to total cost from producing one more unit gives MARGINAL cost.

4

Relationship Between MC, AVC and ATC

The way Marginal Cost interacts with the two average-cost curves follows a general rule that applies to any "marginal versus average" pair of magnitudes, not just cost: as long as the marginal value i…

5

Long-Run Average Cost (LAC) — The Envelope Curve

The long run is the period long enough for a firm to change EVERY factor of production, including the size of its plant or scale of operation — nothing remains fixed.

6

Revenue Concepts: Total, Average and Marginal Revenue

Just as cost concepts describe what a firm gives up to produce, revenue concepts describe what it receives from selling its output.

7

AR-MR Relationship Under Different Market Conditions

Whether AR and MR move together or apart depends entirely on the shape of the demand curve the firm faces — which in turn depends on the market condition the firm operates under.

Exercises

+Show 9 questions9 questions
  1. Q5Explain why the long-run average cost (LAC) curve is called the "envelope curve." Using the concept of economies and diseconomies of scale,…Free
  2. Q6A firm operating under perfect competition sells its product at the prevailing market price of Rs. 25 per unit, whatever quantity it decides…Free
  3. Q7Why is a firm's Average Revenue (AR) curve the same as the demand curve it faces? Explain with reference to the formula for AR.Free
  4. Q8A monopoly firm faces the following demand schedule for its product. Complete the TR, AR and MR columns, and compare the AR-MR relationship…Preview
  5. Q9In the monopoly schedule of Exercise 4, MR is less than AR at every output beyond the first unit. Explain the economic reasoning: why must M…Preview
  6. Q10State whether each of the following is an Explicit Cost or an Implicit Cost for a self-employed doctor who runs her own clinic in her own bu…Preview
  7. Q11Given the following Total Cost schedule of a firm: Q = 0, TC = 50; Q = 1, TC = 90; Q = 2, TC = 120; Q = 3, TC = 140; Q = 4, TC = 170; Q = 5,…Preview
  8. Q12Explain, using the analogy of a cricketer's batting average, why the Marginal Cost curve must lie below the Average Cost curve whenever aver…Preview
  9. Q13Explain why the Average Fixed Cost (AFC) curve continuously falls as output increases but never actually touches the output axis (never beco…Preview

Sample & Board Papers

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

+Show 27 questions27 questions
  1. Q1Revenue received from the sale of products is known as ______ revenue. (a) marginal (b) profit (c) total revenue (d) averagePreview
  2. Q2What is implicit and explicit cost ?Preview
  3. Q3The cost incurred by producing one more unit of output is ________ cost. (a) marginal (b) variable (c) total (d) fixedPreview
  4. Q4Identify the formula of estimating average cost. (a) TVC/Q (b) AVC/Q (c) AFC/Q (d) TC/QPreview
  5. Q5Explicit Cost - Define.Preview
  6. Q6State the relationship between AC and MC.Preview
  7. Q7(a) Bring out the relationship between AR and MR curves under various price conditions. OR (b) Explain the theory of 'Consumer's surplus' wi…Preview
  8. Q8Revenue received from the sale of additional unit is termed as __________ revenue. (a) marginal (b) profit (c) total (d) averagePreview
  9. Q9A book seller sold 40 books with the price of Rs. 10 each. The total revenue of the seller is __________. (a) Rs. 300 (b) Rs. 100 (c) Rs. 40…Preview
  10. Q10What is meant by Sunk cost ?Preview
  11. Q11Draw Demand Curve of a firm for the following : (a) Perfect Competition (b) MonopolyPreview
  12. Q12If total fixed cost (TFC) is 1,000 and total variable cost (TVC) is 200, then find the total cost : (a) 500 (b) 800 (c) 20,000 (d) 1,200Preview
  13. Q13In Monopoly, MR curve lies below ______ curve. (a) AR (b) TR (c) AC (d) MCPreview
  14. Q14Long-run average cost curve is also called as ______ curve. (a) production (b) demand (c) sales (d) planningPreview
  15. Q15What is meant by Explicit Cost ?Preview
  16. Q16Explain the Long-run cost curves with suitable diagram.Preview
  17. Q17A book seller sold 40 books at the price of ₹ 10 each. The total revenue of the seller is ______. (a) ₹ 300 (b) ₹ 100 (c) ₹ 400 (d) ₹ 200Preview
  18. Q18The cost incurred by producing one more unit of output is ______ cost. (a) marginal (b) variable (c) total (d) fixedPreview
  19. Q19Define Cost.Preview
  20. Q20What do you mean by Fixed Cost ?Preview
  21. Q21Write a short note on Marginal Revenue.Preview
  22. Q22Money cost is also known as ______ cost. (a) explicit (b) implicit (c) social (d) realPreview
  23. Q23Long-run average cost curve is also called as ______ curve. (a) demand (b) Planning (c) production (d) salesPreview
  24. Q24Define cost function.Preview
  25. Q25Write a short note on Marginal Revenue.Preview
  26. Q26Given the Total Cost function, TC=15+3Q+7Q² derive the marginal cost function.Preview
  27. Q27(a) Explain the different kinds of costs. OR (b) Explain the output determined under monopolistic competition with help of diagram.Preview

More questions

+Show 4 questions4 questions
  1. Example 1A farmer cultivates his own 5 acres of land and uses Rs. 2,00,000 of his own savings as working capital, along with Rs. 50,000 borrowed from…Free
  2. Example 2A chemical factory pays Rs. 12,00,000 a year in wages, raw materials and other explicit costs, and its implicit costs (the value of the owne…Free
  3. Example 3A firm's Total Fixed Cost is Rs. 100, and its Total Variable Cost at various output levels is given below. Complete the cost schedule by com…Preview
  4. Example 4Using the following short-run cost schedule for a firm with $TFC = Rs.\,60$: | Q | TFC | TVC | TC | AFC | AVC | ATC | MC | |---|---|---|---|…Preview