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Chapter 11

Theory of Costs


Multiple Choice Questions

āĻāĻ•াāϧিāĻ• āĻŦিāĻ•āϞ্āĻĒ āĻĒ্ā§°āĻļ্āύ

1. A firm dumping untreated waste into the air imposes a 

āĻ…āĻļোāϧিāϤ āĻ†ā§ąā§°্āϜāύা āĻŦāϤাāĻšāϤ āĻĒেāϞাāχ āĻĻিāϝ়া āĻĢাā§°্āĻŽে āĻāϟা āφ⧰োāĻĒ āϕ⧰ে ।

(a) Private cost

āĻŦ্āϝāĻ•্āϤিāĻ—āϤ āĻŦ্āϝāϝ়

(b) Social cost

āϏাāĻŽাāϜিāĻ• āĻŦ্āϝāϝ়

(c) Sunk cost

āĻĄুāĻŦ āϝোā§ąা āĻŦ্āϝāϝ়

(d) Zero cost

āĻļূāύ্āϝ āĻŦ্āϝāϝ়

Answer: (b) Social cost (āϏাāĻŽাāϜিāĻ• āĻŦ্āϝāϝ়)।

2. The concept of opportunity cost is associated with

āϏুāϝোāĻ— āĻŦ্āϝāϝ়ā§° āϧাā§°āĻŖাāϟো āχāϝ়াā§° āϏৈāϤে āϏāĻŽ্āĻĒā§°্āĻ•িāϤ

(a) Marshall

āĻŽাā§°্āĻļ্āĻŦেāϞ

(b) Senior 

āϜ্āϝেāώ্āĻ 

(c) Knight

āύাāχāϟ

(d) Hanson

āĻšেāύāϚāύ

Answer: (c) Knight (āύাāχāϟ)।

3. AFC curve is a 

āĻ.āĻāĻĢ.āϚি. āĻŦāĻ•্ā§° āĻšৈāĻ›ে āĻāϟা 

(a) U-shaped curve

āχāω-āφāĻ•ৃāϤিā§° āĻŦāĻ•্ā§°

(b) Negatively sloping curve

āĻ‹āĻŖাāϤ্āĻŽāĻ•āĻ­াā§ąে āĻšেāϞāύীāϝ়া āĻŦāĻ•্ā§°

(c) Positively sloping curve

āϧāύাāϤ্āĻŽāĻ•āĻ­াā§ąে āĻšেāϞāύীāϝ়া āĻŦāĻ•্ā§°

Answer: (b) Negatively sloping curve (āĻ‹āĻŖাāϤ্āĻŽāĻ•āĻ­াā§ąে āĻšেāϞāύীāϝ়া āĻŦāĻ•্ā§°)।

4. AVC curve is a

āĻāĻ­িāϚি āĻŦāĻ•্ā§° āĻšৈāĻ›ে āĻāϟা

(a) Falling curve 

āĻĒā§°ি āĻĨāĻ•া āĻŦāĻ•্ā§°

(b) Rising curve

āωāĻĻীāϝ়āĻŽাāύ āĻŦāĻ•্ā§°

(c) U-shaped curve

āχāω-āφāĻ•ৃāϤিā§° āĻŦāĻ•্ā§°

Answer: (c) U-shaped curve (āχāω-āφāĻ•ৃāϤিā§° āĻŦāĻ•্ā§°)।

5. MC is

āĻāĻŽāϚি āĻšৈāĻ›ে

(a) Independent of fixed costs

āϏ্āĻĨিā§° āĻŦ্āϝāϝ়ā§° āĻĒā§°া āϏ্āĻŦāϤāύ্āϤ্ā§°

(b) Dependent upon fixed costs

āϏ্āĻĨিā§° āĻŦ্āϝāϝ়ā§° āĻ“āĻĒā§°āϤ āύিā§°্āĻ­ā§°āĻļীāϞ

(c) Neither of the two.

āĻĻুāϝ়োāϟাā§° āĻ•োāύোāϟোā§ąেāχ āύāĻšāϝ়।

Answer: (a) Independent of fixed costs (āϏ্āĻĨিā§° āĻŦ্āϝāϝ়ā§° āĻĒā§°া āϏ্āĻŦāϤāύ্āϤ্ā§°)।

6. SAC curve is called 

āĻāĻ›āĻāϚি āĻŦāĻ•্ā§°āĻ• āĻ•োā§ąা āĻšāϝ় 

(a) Envelop curve

āĻ†ā§ąā§°ি āĻĨāĻ•া āĻŦāĻ•্ā§°

(b) Plant curve

āωāĻĻ্āĻ­িāĻĻā§° āĻŦāĻ•্ā§°

(c) Neither of the two

āĻĻুāϝ়োāϟাā§° āĻ•োāύোāϟোā§ąেāχ āύāĻšāϝ়

Answer: (b) Plant curve (āωāĻĻ্āĻ­িāĻĻā§° āĻŦāĻ•্ā§°)।

7. When AC is minimum, then

āϝেāϤিāϝ়া āĻāϚি āύিāĻŽ্āύāϤāĻŽ āĻšāϝ়, āϤেāϤিāϝ়া

(a) AC<MC

āĻāϚি<āĻāĻŽāϚি

(b) AC>MC

āĻāϚি>āĻāĻŽāϚি

(c) AC=MC

āĻāϚি=āĻāĻŽāϚি

(d) None of these.

āĻāχāĻŦোā§°ā§° āĻāĻ•ো āύāĻšāϝ়।

Answer: (c) AC=MC (āĻāϚি=āĻāĻŽāϚি)।

8. Internal economics are available to

āφāĻ­্āϝāύ্āϤ⧰ীāĻŖ āĻ…ā§°্āĻĨāύীāϤি āωāĻĒāϞāĻŦ্āϧ

(a) Particular firm

āύিā§°্āĻĻিāώ্āϟ āĻĢাā§°্āĻŽ

(b) All the firms

āϏāĻ•āϞো āĻĢাā§°্āĻŽ

Answer: (a) Particular firm (āύিā§°্āĻĻিāώ্āϟ āĻĢাā§°্āĻŽ)।

9. The envelop curve is the curve related to

āĻ†ā§ąā§°āĻŖ āĻŦāĻ•্ā§° āĻšৈāĻ›ে āχāϝ়াā§° āϏৈāϤে āϏāĻŽ্āĻĒā§°্āĻ•িāϤ āĻŦāĻ•্ā§°

(a) LAC

āĻš্ā§°āĻĻ

(b) SAC

āĻŦেāĻ—

(c) SMC

āĻāĻ›āĻāĻŽāϚি

(d) AVC

āώ্āϟ্ā§°োāĻ•

Answer: (a) LAC (āĻš্ā§°āĻĻ)।

Very Short Answer Type Questions

āĻ…āϤি āϚāĻŽু āωāϤ্āϤ⧰ āĻĒ্ā§°āĻ•াā§°ā§° āĻĒ্ā§°āĻļ্āύ

1. What is real cost ? 

āĻĒ্ā§°āĻ•ৃāϤ āĻŦ্āϝāϝ় āĻ•িāĻŽাāύ? 

Answer: 

2. Define opportunity cost.  

āϏুāϝোāĻ—āĻŦ্āϝāϝ় āύিā§°্āϧাā§°āĻŖ āϕ⧰া।

Answer:

3. What is meant by money cost ?

āϟāĻ•া āĻ–ā§°āϚ ā§° āĻ…ā§°্āĻĨ āĻ•ি?  

Answer:

4. What is social cost? 

āϏাāĻŽাāϜিāĻ• āĻŦ্āϝāϝ় āĻ•িāĻŽাāύ? 

Answer: 

5. Define private cost.

āĻŦ্āϝāĻ•্āϤিāĻ—āϤ āĻŦ্āϝāϝ় āύিā§°্āϧাā§°āĻŖ āϕ⧰া।

Answer: 

6. What is average fixed cost (AFC) ? 

āĻ—āĻĄ় āϏ্āĻĨিā§° āĻŦ্āϝāϝ় (āĻ.āĻāĻĢ.āϚি.) āĻ•িāĻŽাāύ? 

Answer: 

7. Give the meaning of average variable cost (AVC).

āĻ—āĻĄ় āĻĒā§°িā§ąā§°্āϤāύāĻļীāϞ āĻŦ্āϝāϝ়ā§° (āĻāĻ­িāϚি) āĻ…ā§°্āĻĨ āĻĻিāϝ়া।

Answer:  

8. What is average cost (AC). 

āĻ—āĻĄ় āĻŦ্āϝāϝ় āĻ•িāĻŽাāύ (āĻāϚি)। 

Answer:

9. Define marginal cost (MC). 

āĻĒ্ā§°াāύ্āϤিāĻ• āĻŦ্āϝāϝ় (āĻāĻŽāϚি) āύিā§°্āϧাā§°āĻŖ āϕ⧰া। 

Answer: 

10. As soon as MC starts rising, AVC also starts rising. Is this statement true or false ?

āĻāĻŽāϚি āωāĻ িāĻŦāϞৈ āφ⧰āĻŽ্āĻ­ āϕ⧰াā§° āϞāĻ—ে āϞāĻ—ে, āĻāĻ­িāϚিāĻ“ āωāĻ িāĻŦāϞৈ āφ⧰āĻŽ্āĻ­ āϕ⧰ে। āĻāχ āĻŽāύ্āϤāĻŦ্āϝāϟো āϏঁāϚা āύে āĻŽিāĻ›া?

Answer:

11. AFC curve is a rectangular hyperbola. What is the reason behind it?

āĻ.āĻāĻĢ.āϚি. āĻŦāĻ•্ā§° āĻšৈāĻ›ে āĻāĻ• āφāϝ়āϤাāĻ•াā§° āĻšাāχāĻĒাā§°āĻŦোāϞা। āχāϝ়াā§° āφঁā§°ā§° āĻ•াā§°āĻŖ āĻ•ি?

Answer: 

12. TFC (Total Fixed Cost) = . + TC (Total Cost).

āϟিāĻāĻĢāϚি (āĻŽুāĻ  āϏ্āĻĨিā§° āĻŦ্āϝāϝ়) = । + āϟিāϚি (āĻŽুāĻ  āĻŦ্āϝāϝ়)।

Answer:  

13. Define economies of scale.

āϏ্āĻ•েāϞ⧰ āĻ…ā§°্āĻĨāύীāϤি āύিā§°্āϧাā§°āĻŖ āϕ⧰া।

Answer: 

14. What are internal economies?

āφāĻ­্āϝāύ্āϤ⧰ীāĻŖ āĻ…ā§°্āĻĨāύীāϤিāĻŦোā§° āĻ•ি?

Answer:  

15. Define diseconomies of scale.

āϏ্āĻ•েāϞ⧰ āĻ…āĻ…ā§°্āĻĨāύীāϤি āύিā§°্āϧাā§°āĻŖ āϕ⧰া।

Answer:

Short Answer Type Questions

āϚāĻŽু āωāϤ্āϤ⧰āĻĒ্ā§°āĻ•াā§°ā§° āĻĒ্ā§°āĻļ্āύ

1. What are money costs and costs ?

āϧāύ⧰ āĻŦ্āϝāϝ় āφ⧰ু āĻŦ্āϝāϝ় āĻ•িāĻŽাāύ?

Answer:

2. What are explicit and implicit costs?

āϏ্āĻĒāώ্āϟ āφ⧰ু āĻ…āύ্āϤ⧰্āύিāĻšিāϤ āĻŦ্āϝāϝ় āĻ•িāĻŽাāύ?  

Answer:

3. What are private and social costs?

āĻŦ্āϝāĻ•্āϤিāĻ—āϤ āφ⧰ু āϏাāĻŽাāϜিāĻ• āĻŦ্āϝāϝ় āĻ•িāĻŽাāύ?

Answer:

4. What are sunk and incremental costs ?

āĻ•ি āĻĄুāĻŦ āĻ—ৈāĻ›ে āφ⧰ু āĻŦā§°্āϧিāϤ āĻŦ্āϝāϝ়?

Answer: 

5. What are fixed and variable costs ?

āϏ্āĻĨিā§° āφ⧰ু āĻĒā§°িā§ąā§°্āϤāύāĻļীāϞ āĻŦ্āϝāϝ় āĻ•ি?

Answer:

6. What are some of the implicit costs incurred by an entrepreneur in running his or her firm?

āĻāϜāύ āωāĻĻ্āϝোāĻ—ীāϝ়ে āϤেāĻ“ঁā§° āĻĢাā§°্āĻŽ āϚāϞাāĻŦāϞৈ āϕ⧰া āĻ•িāĻ›ুāĻŽাāύ āĻ…āύ্āϤ⧰্āύিāĻšিāϤ āĻŦ্āϝāϝ় āĻ•িāĻŽাāύ?

Answer: 

7. Distinguish between AC and MC.

āĻāϚি āφ⧰ু āĻāĻŽāϚিā§° āĻŽাāϜāϤ āĻĒাā§°্āĻĨāĻ•্āϝ āϕ⧰া।

Answer:

8. What is the relationship between AC and MC.

āĻāϚি āφ⧰ু āĻāĻŽāϚিā§° āĻŽাāϜ⧰ āϏāĻŽ্āĻĒā§°্āĻ• āĻ•ি।

Answer: 

9. What is the shape of long run average cost curve?

āĻĻীā§°্āϘāĻŽ্āϝাāĻĻী āĻ—āĻĄ় āĻŦ্āϝāϝ় āĻŦāĻ•্ā§°ā§° āφāĻ•ৃāϤি āĻ•ি?

Answer:

10. What are the reasons for U-shapedness of the LAC curve ?

āĻāϞ.āĻ.āϚি. āĻŦāĻ•্ā§°ā§° āχāω-āφāĻ•ৃāϤিā§° āĻ•াā§°āĻŖāĻŦোā§° āĻ•ি?

Answer:

11. Write short notes on the 
(a) Internal economies 
(b) External economies 
(c) Diseconomies of scale.

(āĻ•) āφāĻ­্āϝāύ্āϤ⧰ীāĻŖ āĻ…ā§°্āĻĨāύীāϤিā§° āĻ“āĻĒā§°āϤ āϚāĻŽু āϟোāĻ•া āϞিāĻ–āĻ• (āĻ–) āĻŦাāĻš্āϝিāĻ• āĻ…ā§°্āĻĨāύীāϤি (āĻ—) āϏ্āĻ•েāϞ⧰ āĻ…āĻ…ā§°্āĻĨāύীāϤি।

Answer:

Long Answer Type Questions

āĻĻীāϘāϞীāϝ়া āωāϤ্āϤ⧰āĻĒ্ā§°āĻ•াā§°ā§° āĻĒ্ā§°āĻļ্āύ

1. Explain the concepts of AFC, AVC, AC and MC.

āĻ.āĻāĻĢ.āϚি., āĻ.āĻ­ি.āϚি., āĻ.āϚি. āφ⧰ু āĻāĻŽ.āϚি.-ā§° āϧাā§°āĻŖাāĻŦোā§° āĻŦā§°্āĻŖāύা āϕ⧰া।

Answer:

2. Explain clearly the shape of short run AC curve.

āϚুāϟি ā§°াāĻŖ āĻāϚি āĻŦāĻ•্ā§°ā§° āφāĻ•ৃāϤি āϏ্āĻĒāώ্āϟāĻ•ৈ āĻŦā§°্āĻŖāύা āϕ⧰া।

Answer:

3. How can you derive the AC curve ?

āφāĻĒুāύি āĻāϚি āĻŦāĻ•্ā§° āĻ•েāύেāĻĻā§°ে āφāĻšā§°āĻŖ āϕ⧰িāĻŦ āĻĒাā§°ে?

Answer:

4. Explain clearly the relationship between AC and MC.

āĻāϚি āφ⧰ু āĻāĻŽāϚিā§° āĻŽাāϜ⧰ āϏāĻŽ্āĻĒā§°্āĻ• āϏ্āĻĒāώ্āϟāĻ­াā§ąে āĻŦā§°্āĻŖāύা āϕ⧰া।

Answer:

5. Explain clearly the concept of long run average cost (LAC) curve.

āĻĻীā§°্āϘāĻŽ্āϝাāĻĻী āĻ—āĻĄ় āĻŦ্āϝāϝ় (āĻāϞ.āĻ.āϚি.) āĻŦāĻ•্ā§°ā§° āϧাā§°āĻŖাāϟো āϏ্āĻĒāώ্āϟāĻ­াā§ąে āĻŦā§°্āĻŖāύা āϕ⧰া।

Answer:

6. Distinguish between plant curve and envelop curve.

āωāĻĻ্āĻ­িāĻĻā§° āĻŦāĻ•্ā§° āφ⧰ু āĻ†ā§ąā§°āĻŖ āĻŦāĻ•্ā§°ā§° āĻŽাāϜāϤ āĻĒাā§°্āĻĨāĻ•্āϝ āϕ⧰া।

Answer:

7. Explain the economies and diseconomies of scale.

āϏ্āĻ•েāϞ⧰ āĻ…ā§°্āĻĨāύীāϤি āφ⧰ু āĻ…āĻ…ā§°্āĻĨāύীāϤিāĻŦ্āϝাāĻ–্āϝা āϕ⧰া।

Answer:

8. What are the modern views related to long run cost ?

āĻĻীā§°্āϘāĻŽ্āϝাāĻĻী āĻŦ্āϝāϝ়ā§° āϏৈāϤে āϏāĻŽ্āĻĒā§°্āĻ•িāϤ āφāϧুāύিāĻ• āĻĻৃāώ্āϟিāĻ­ংāĻ—ীāĻŦোā§° āĻ•ি?

Answer:

Very Long Answer Type Questions

āĻ…āϤি āĻĻীāϘāϞীāϝ়া āωāϤ্āϤ⧰ āĻĒ্ā§°āĻ•াā§°ā§° āĻĒ্ā§°āĻļ্āύ

1. Explain the different concepts related to costs. 

āĻŦ্āϝāϝ়āϏāĻŽ্āĻĒā§°্āĻ•ীāϝ় āĻŦিāĻ­িāύ্āύ āϧাā§°āĻŖাāĻŦোā§° āĻŦā§°্āĻŖāύা āϕ⧰া। 

Answer:

2. Discuss the derivation of AFC, AVC, AC and MC.

āĻ.āĻāĻĢ.āϚি., āĻ.āĻ­ি.āϚি., āĻ.āϚি. āφ⧰ু āĻāĻŽ.āϚি.-ā§° āωāĻĻ্āĻ­ā§ą āϏāĻŽ্āĻĒā§°্āĻ•ে āφāϞোāϚāύা āϕ⧰া।

Answer:

3. Explain clearly the shape of LAC (or LMC) curve.

āĻāϞ.āĻ.āϚি. (āĻŦা āĻāϞ.āĻāĻŽ.āϚি.) āĻŦāĻ•্ā§°ā§° āφāĻ•ৃāϤি āϏ্āĻĒāώ্āϟāĻ­াā§ąে āĻŦā§°্āĻŖāύা āϕ⧰া।

Answer:

4. What are economies of scale ? How do external economies and diseconomies of scale affect the firm's long run marginal cost curve ? Explain.

āϏ্āĻ•েāϞ⧰ āĻ…ā§°্āĻĨāύীāϤি āĻŦোā§° āĻ•ি? āĻŦাāĻš্āϝিāĻ• āĻ…ā§°্āĻĨāύীāϤি āφ⧰ু āϏ্āĻ•েāϞ⧰ āĻ…āĻ…ā§°্āĻĨāύীāϤিāϝ়ে āĻĒ্ā§°āϤিāώ্āĻ াāύāϟোā§° āĻĻীā§°্āϘāĻŽ্āϝাāĻĻী āĻĒ্ā§°াāύ্āϤিāĻ• āĻŦ্āϝāϝ় āĻŦāĻ•্ā§°āĻ• āĻ•েāύেāĻĻā§°ে āĻĒ্ā§°āĻ­াā§ąিāϤ āϕ⧰ে? āĻŦ্āϝাāĻ–্āϝা āϕ⧰া।

Answer:

5. Discuss the nature of the short-run and long-run average cost curves. Why is the long-run cost curve flatter than the short run cost curve ?

āĻ•āĻŽ āϏāĻŽāϝ়ā§° āĻŦাāĻŦে āφ⧰ু āĻĻীā§°্āϘāĻŽ্āϝাāĻĻী āĻ—āĻĄ় āĻŦ্āϝāϝ় āĻŦāĻ•্ā§°ā§° āĻĒ্ā§°āĻ•ৃāϤি āφāϞোāϚāύা āϕ⧰āĻ•। āĻĻীā§°্āϘāĻŽ্āϝাāĻĻী āĻŦ্āϝāϝ় āĻŦāĻ•্ā§°āϟো āĻ•āĻŽ āϏāĻŽāϝ়ā§° āĻŦ্āϝāϝ় āĻŦāĻ•্ā§°āϤāĻ•ৈ āĻ•িāϝ় āϤোāώাāĻŽোāĻĻ āϕ⧰ে?

Answer:

6. Discuss the relationship between short run and long run average cost curves. How would you derive the long run MC (marginal cost) curve ?

āϚāĻŽু āϏāĻŽāϝ় āφ⧰ু āĻĻীā§°্āϘāĻŽ্āϝাāĻĻী āĻ—āĻĄ় āĻŦ্āϝāϝ় āĻŦāĻ•্ā§°ā§° āĻŽাāϜ⧰ āϏāĻŽ্āĻĒā§°্āĻ• āφāϞোāϚāύা āϕ⧰āĻ•। āφāĻĒুāύি āĻĻীā§°্āϘāĻŽ্āϝাāĻĻী āĻāĻŽāϚি (āĻĒ্ā§°াāύ্āϤিāĻ• āĻŦ্āϝāϝ়) āĻŦāĻ•্ā§° āĻ•েāύেāĻĻā§°ে āφāĻšā§°āĻŖ āϕ⧰িāĻŦ?

Answer:

7. Distinguish between Economies and Diseconomies of scale.

āĻ…ā§°্āĻĨāύীāϤি āφ⧰ু āϏ্āĻ•েāϞ⧰ āĻ…āĻ…ā§°্āĻĨāύীāϤিā§° āĻŽাāϜāϤ āĻĒাā§°্āĻĨāĻ•্āϝ।

Answer:

8. Fill in the blanks in the paragraph below to give a good explanation of average and marginal costs in the short run. The words you need are given below :

āĻ•āĻŽ āϏāĻŽāϝ়ā§° āĻŦাāĻŦে āĻ—āĻĄ় āφ⧰ু āĻĒ্ā§°াāύ্āϤিāĻ• āĻŦ্āϝāϝ়ā§° āĻ­াāϞ āĻŦ্āϝাāĻ–্āϝা āĻĻিāĻŦāϞৈ āϤāϞ⧰ āĻĒেā§°াāĻ—্ā§°াāĻĢāϤ āĻĨāĻ•া āĻ–াāϞী āĻ াāχāĻŦোā§° āĻĒূā§°āĻŖ āϕ⧰া। āφāĻĒোāύাāĻ• āĻĒ্ā§°āϝ়োāϜāύ āĻšোā§ąা āĻļāĻŦ্āĻĻāĻŦোā§° āϤāϞāϤ āĻĻিāϝ়া āĻšৈāĻ›ে:

rise, per unit, increasing returns, total cost, fall, diminishing returns, rise, U, marginal.

The marginal cost is the change in the ........ as the level of output changes. The average cost, however, is the cost ........ of total output. As output increases, marginal cost will at first tend to ........ as there will be increasing returns to the variable factor. When diminishing returns set in the marginal cost will then ........ The average ost curve will show a similar pattern. Initially the level of average cost will ............. but diminishing returns will then make it ........ followed by ........ Therefore make both the average and ............. cost curves............. 

9. What is the shape of LAC and LMC according to the modern approach?

āφāϧুāύিāĻ• āĻĒāĻĻ্āϧāϤি āĻ…āύুāϏ⧰ি āĻāϞāĻāϚি āφ⧰ু āĻāϞāĻāĻŽāϚিā§° āφāĻ•ৃāϤি āĻ•ি?

Answer: