Producer Behaviour and Supply Test - 4

AC curve is U-shaped following the law of variable proportions: it tends to fall owing to increasing returns to a factor, it tends to stabilize owing to constant returns to a factor, and it tends to rise owing to diminishing returns to a factor.

TVC directly varies with the level of output.When there is no output, TVC will be zero, as at zero level of output, no rawmaterials will be needed, no labour charges have to be paid etc. So there willbe no variable cost at zero level of output.

The statement "Supply creates its own demand" is given by J.B. Say.Jean-Baptiste Say was a French economist who had liberal views and argued in favour of competition and free trade. He is best known for Say's law, which is also known as the law of markets.

The shutdown point denotes the exact moment whena company's (marginal) revenue is equal to its variable (marginal) costs.

In the long run all the factors can be changed.All the factors (variable and fixed) become variable factors in the long run.

There is always an element of TFC even at zerokevel of output. Because of this reason AFC can never be zero and though itkies close to the X axus it can never touch the X axis.

At break-even point, a firm makes normalprofits. At this point, total revenue and total cost are equal. Profits aresaid to be normal when TR=TC or AR=AC.

In this schedulewe can see that as the price of the commodity increases , its supply alsoincreases.

When MC AC, AC rises.

Average variable cost is calculated by dividing the total variable cost by the number of units of output. It indicates the variable cost per unit of output produced.