Economics

CBSE Class 12

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1.

Unemployment is reduced due to the measures taken by the government. State its economic value in the context of production possibilities frontier.

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7.

A consumer buys 18 units of a good at a price of Rs. 9 per unit. The price elasticity of demand for the good is (−) 1. How many units the consumer will buy at a price of Rs. 10 per unit? Calculate.

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What is the behaviour of average fixed cost as output is increased? Why is it so?

Average fixed cost (AFC) is the fixed costs of production (FC) divided by the quantity (Q) of output produced. Fixed costs are those costs that must be incurred in fixed quantity regardless of the level of output produced. It is derived by dividing the Total Fixed Cost by quantity of output produced. That is,

AFC=TFC/Q

Where,

TFC represents Total Fixed Cost.

Q represents units of output produced.

Average fixed cost is high at relatively small output quantities and low at relatively large output quantities. The reason, of course, is that as output increases, a given fixed cost is spread more thinly over a larger quantity.

Secondly, average fixed cost remains positive, it never reaches a zero value, because average fixed cost is a rectangular hyperbola. This happens because AFC is defined as the ratio of TFC to output. We know that TFC remains constant throughout all the output levels and as output increases, with TFC being constant, AFC decreases .When output level is close to zero, AFC is infinitely large and by contrast when output level is very large, AFC tends to zero but never becomes zero. AFC can never be zero because it is a rectangular hyperbola and it never intersects the x-axis and thereby can never be equal to zero.

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