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Chapter 3 – Production and Costs
1.
The link between the physical inputs utilized in production and the corresponding physical output is known as the production function. This illustrates how many input units result in the highest possible output. It can be shown as:
Where,
Qx is the number of output units (x) generated.
L denotes units of labour employed
K stands for units of employed capital.
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Ans: It is the sum of all goods and services produced by a company using the inputs given to it within a given time frame.
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Ans: An input’s average product is calculated by dividing its total product by the entire quantity of the variable input that was utilized to create it.
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Ans: The marginal product is the extra output that comes from hiring one more unit of labour. To put it another way, it’s the change in total output that comes from hiring one more unit of labour. In algebra, it is the ratio of the change in the total product to the change in the units of labour used.
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Ans: The law of varying proportions can be used to explain this. According to this law, the following alterations occur when all other inputs are held constant and only one variable factor input is permitted to increase:
1. Total Product (TP) increases in tandem with an increase in Marginal Product (MP). Until the MP curve reaches its maximum, the effect produces a convex curve.
2. When MP decreases but remains positive, TP rises as the rate decreases, resulting in a concave total product.
3. The TP is at its highest when MP is at zero.
4. The TP decreases as MP turns negative.
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Ans: The long run is a time frame during which the manufacturer has the ability to alter any aspect of the production, including the structure, machinery, etc. The manufacturer has a limited amount of time to alter the production method throughout the short-run. At least one production component is fixed over this time, while other factors may be altered or enhanced. A farmer with a set plot of land is an example of a short run.
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Ans: This law states that the marginal product of the variable factor will first increase but eventually reach a point where it will begin to decline if the units of the variable factor continue to increase while the level of the fixed factor remains constant. Any more variable factors will have a marginal product of zero or maybe negative after this.
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Ans: The law of variable proportions says that if you combine more and more units of the variable factor (labor) with the same amount of the fixed factor (capital), the total result will go up at first, but after a certain point, it will start going down.
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Ans: Constant returns to scale apply when a proportionate increase in all factors of production results in an equal proportional rise in output. For example, if both labour and capital are increased by 10%, and output increases by 10%, we say that the production function has constant returns to scale. Algebraically, constant returns to scale exist when F (nL, nK) = n (L, K). This means that if both labor and capital are grown by ‘n’ times, so will production.
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Ans: Increasing returns to scale occur when the alteration in production factors results in a greater than proportional increase in total output. This indicates that the organization has enhanced its productivity.
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Ans: When changes in the elements of production lead to a reduction in changes in the overall output, this is known as decreasing returns to scale. This suggests that rather than boosting production, the modifications have had the opposite effect.
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Ans: The cost function is the relationship between the total output and the cost of production.
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Total Fixed Cost: The term “total fixed cost” describes the expenses a business incurs to purchase the fixed components of production, such as buildings, machinery, depreciation, etc. Since fixed factors cannot change in the short term, the fixed cost is constant across all output levels. Another name for this is overhead costs.
Total Variable Cost: This is the sum of a company’s expenses for variable manufacturing inputs. The variable cost increases in proportion to the quantity of variable inputs. It is also referred to as “Prime cost” or “Direct cost” and comprises costs such as labor compensation, fuel expenses, and so forth.
Total Cost (TC): The total cost is the sum of the total fixed and variable costs. Total cost is equal to the sum of the fixed and variable costs. TFC + TVC = TC
14.
Ans: The fixed cost per unit of output generated is known as the average fixed cost.
The variable cost per unit of output produced is known as the average variable cost.
The sum of a company’s average fixed and variable costs is its average cost.
15.
Ans: There can be no fixed costs in the long run. A company has the ability to change the production scale and factor ratio throughout time. Over time, there are no fixed costs because the company can change the amount of any production ingredient.
16.
Ans: The average fixed cost curve is characterized by a rectangular hyperbola. It is defined as the ratio of TFC to output. We are aware that TFC remains constant across all output levels, and as output increases, AFC decreases in conjunction with TFC’s constancy. In contrast, AFC is infinitely large when the output level is at or near zero, while it tends to zero but never reaches it when the output level is extremely high. AFC is a rectangular hyperbola that never intersects the x-axis, which means that it can never be zero.
17.
Ans: Short-run marginal cost (SMC), average variable cost (AVC), and average cost (SAC) curves are U-shaped. The law of variable proportion causes U-shaped curves. All costs (average and marginal) reduce in early production due to rising labour returns. In addition, short-term MP of labour increases, allowing more output per unit of labour, lowering all costs curves. With constant returns to labour, cost curves become constant and reach their minimal point (the optimal capital-labour combination). Exceeding this optimal combination, supplementary units of labour elevate costs, and as marginal product diminishes, the cost curve rises due to diminishing returns to labour.
18.
Ans: The points listed below can help to explain it:
- The Short Marginal Curve (SMC) is smaller than the Average Variable Cost (AVC) when the AVC decreases.
- SMC surpasses AVC when AVC increases.
- SMC equals AVC when AVC is minimum and constant.
Consequently, at the minimum position, the SMC curve intersects the AVC curve.
19.
Ans: The following points can be used to explain this:
- SMC is below SAC when SAC declines.
- SMC is above SAC when SAC increases.
Consequently, because SMC = SAC at its minimum, the SMC curve crosses the SAC curve there.
20.
Ans:
Because of the law of changing proportions, the SMC curve is in the shape of a U. In order to figure out why SMC has a U-shape, let’s use the law of variable proportions to split the SMC curve (UAB) into three parts:
(a) The UA part is the same as growing returns to factor.
(b) The lowest point A is where the returns to factor stay the same.
(c) The AB part is the same as falling returns to factor. The part of SMC (UA) that is falling in the early stages of production is because of applying rising returns to factor. Then the SMC stops going down and hits its lowest point, “A,” because there are constant returns to a factor. The ‘AB’ part of SMC starts going up after the minimum point A because the variable factor’s returns start going down. The way the SMC curve moves (first dropping, then staying the same at its lowest point, and then rising) makes it look like the letter “U” in English.
21.
The Long Run Marginal Cost (LMC) and Long Run Average Cost (LAC) exhibit a U-shaped curve due to the law of returns to scale. According to this law, a company or organization experiences three phases in production: Increasing Returns to Scale (IRS), Constant Returns to Scale (CRS), and Diminishing Returns to Scale (DRS). The curve assumes a U-shape as the Long-Run Average Cost (LAC) declines due to economies of scale (increasing returns to scale); it reaches a constant output at the constant returns to scale (CRS) level, and ultimately, if the business encounters diseconomies of scale and persists in production beyond this point, it will experience an increase or decreasing returns to scale (DRS).
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Related Study Resources of Chapter 3 – Production and Costs
Students can use the links below to get extra study materials for Class 12 Economics Chapter 3: Production and Costs.
| Sl No. | Related Links |
|---|---|
| 1 | Class 12 Economics Chapter 3 Production and Costs – Important Questions |
| 2 | Class 12 Economics Chapter 3 NCERT Textbook |
Download Production and Costs NCERT Solutions PDF
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Class 12 Production and Costs Overview
Economics is based on production and cost analysis because they show how businesses choose what to make and how much to charge for it. Chapter 3 talks about important ideas such the laws of production, short-run and long-run production functions, and how inputs and outputs are related. With step-by-step explanations, real-life examples, and clear pictures, our Production and Costs NCERT Solutions make these ideas easy to understand. This lets you see how theory applies to real-world production choices, like how industries use inputs in the best way to get the most work done.
Students typically have trouble telling the difference between fixed and variable elements or using the principles of returns in math problems. A lot of people also become confused by cost curves, such as total cost, average cost, and marginal cost, especially when they have to read graphs. To fix this, our Production and Costs NCERT Solutions break each idea down into easy-to-follow steps, using illustrations and examples to help. They also point up common mistakes on tests, which helps you avoid making them and produce clear, well-organized responses.
The 2025 NCERT revisions for this chapter have improved many parts by cutting down on repeated derivations and introducing examples from the actual world. Now, there is more focus on how costs behave in real-life situations, how to use graphs to show production functions, and how these things are related to market efficiency. Our answers are in line with these changes and give you fresh examples that meet the new exam standards, so you can be sure you’re ready.
Finally, these Production and Costs NCERT Solutions help you understand, build your confidence, and study in a structured way. These answers help you learn the balance between inputs, outputs, and costs in a way that is structured and ready for exams, whether you are studying for the Class 12 board exams, the CUET, or building a foundation for further studies in economics.
FAQs – Production and Costs Class 12 Chapter 3 NCERT
This is because it shows how businesses decide how to spend their resources in the best way.
In the short term, certain inputs are fixed and some are variable. In the long run, all inputs can vary.
A lot of people get average and marginal costs mixed up, but our solutions make them clear with graphs and step-by-step logic.
Laws of production and cost behavior are related to industries like farming, factories, and services.
They make it easy to understand each step and show you how to use formulae to do math.