Producer Behaviour and Supply Test - 7

Total fixed cost (TFC) is that cost that does not change with a change in the level of output. Total variable cost (TVC) is that cost that changes as the level of output changes. Total cost (TC) is the sum of total fixed cost and total variable fixed cost.

AC curve will always lie above the AVC and AFCcurve because AC , at all levels of output includes both AVC and AFC.

'Supply creates its own demand' was said byJean-Baptiste Say. According to him whatever is produced is sold in theeconomy. The economy works on full employment level and its a normal thing.

Public goods are provided as a whole to the members of society by the government. The consumption of these goods by an individual doesn’t reduce its availability or doesn’t exclude others from consuming it.

If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. There will be Excess demand and Shortage of goods will exist. This can possibly result in black marketing.

It is because Average product increases at an increasing rate, then it starts decreasing in the second stage and continues to decrease in the third stage but AP will always be positive.

It is inverse U shaped because the initially thetotal product increases at a increasing rate, and then it increases at adiminishing rate and finally the total product starts decreasing.

Law of Variable Proportion is regarded as animportant theory in Economics. It is referred to as the law which states thatwhen the quantity of one factor of production is increased, while keeping allother factors constant, it will result in the decline of the marginal productof that factor.

The production function describes how inputs like labor, capital, and raw materials are combined to produce output. It shows the technological relationship between inputs and outputs.

When marginal revenue equals marginal cost, the firm achieves profit maximization. At this point, the firm is producing the optimal level of output where the additional revenue earned from selling one more unit equals the additional cost incurred in producing that unit.