Explore topic-wise InterviewSolutions in Current Affairs.

Concept: Total Output.

Explanation : Total Output is the sum total of the commodity produced at a given period of time.

So, total output of Mr. Kriplani is taken as total output for the year 2918-19.

Demand: 

1. Demand is a desire backed by ability and willingness to pay.

2. Demand is inversely related to price. 

3. Demand curve has negative slope.

Supply: 

1. Supply means the various quantities offered for sale by a producer at a given price and at a given period of time. 

2. Supply is directly related to price. 

3. Supply curve has positive slope.

Option : (b) marginal Revenue

Correct option: (b) marginal revenue

Aggregate supply refers to the minimum amount of sales proceeds which the entrepreneurs expect to receive from the sale of output at a given level of employment.

Yes, I agree with this statement.

OR

No, I do not agree with this statement.

Concept: Stock and Supply

Explanation : Supply means the various quantities of a commodity offered for sale by producer during a given period of time at a particular price.

In above case, total stock is 5000 kg rice and total supply is 2000 kg rice.

Average cost refers to the cost of production per unit cost of a commodity. It is calculated by dividing total cost by total quantity of a commodity. 

Hence,

AC = \(\frac{TC}{TQ}\)

= \(\frac{30,000}{600}\) = ₹ 50 per unit

Yes, I agree with this statement. 

• The stock of perishable goods like vegetables, flowers, fruits, milk, etc., is equal to supply.
• This is because perishable goods cannot be stored for long time. They become stale.
• They need to be sold within a short period of time irrespective of the price.
• Also the cost of storage is high. 
• So, the above statement is true.

This is an exception to the law of supply. As per the law, more is sold at higher price and less at lower price. In this case an individual seller is in need of cash, as he has to go to village urgently, so he has to sell his product at lower price.

Yes, I agree with this statement. 

OR 

Price is the only determinant of Supply.

No, I do not agree with this statement. Supply depends on many factors. Price is the main factor. There is a direct relationship between price and supply. 

Besides price there are many other factors such as:

• Cost of production and supply are indirectly related. Higher the cost, lesser will be the supply.
• State of technology i.e., advanced technology increases supply.
• Government policy like subsidies encourage production and increases supply, whereas heavy taxation decreases supply.
• Natural conditions like favourable weather condition increases supply.
• Exports decreases supply and imports increases supply. Better infrastructure facility increases supply.
• Nature of market like competitive market increases supply. Thus, the above statement is true.

TR = Price x Quantity 

= 10 x 400 

= 4,000

AR = \(\frac{TR}{TQ}\)

= \(\frac{4,000}{400}\)

= ₹ 10

TR is the revenue derived by a firm by multiplying total units sold by its price.

Hence, TR = P x Q

= 25 x 500 

= 12, 500₹

Yes, I agree with this statement.

• Reservation price is sellers minimum price, below which the seller will not supply any unit of the commodity.
• Whether the sellers reservation price will be high or low depends upon number of factors. One of them is the durability of the commodity.
• If the commodity is durable like TV set, car etc., then sellers reservation price will be high.
• But if the commodity is perishable like fish, flowers, vegetables, milk etc., then reservation price will be low.
• As perishable commodities cannot be stored for long, it can become stale and useless.
• Therefore, sellers are forced to clear stock as early as possible. So the reservation price is low.

Revenue refers to the income earned by a firm from the sale of given quantity of a commodity in the market at different prices. 

Following are the three main types.

(A) Total Revenue (TR) : Total Revenue (Income) refers to total receipts of the firm from its sales of commodity. It is obtained i by multiplying the price per unit of the commodity with the total number of units!; of commodity sold to the consumers. Thus, Total Revenue = Price per unit x Total Number of units of commodity sold.

TR = Price x Quantity Sold

Example : If the firm sells 10 units of a commodity at ₹100 per unit then total revenue will be TR = 100 x 10. TR = ₹1000

(B) Average Revenue (AR): Average Revenue refers to the revenue (income) per unit of the commodity sold. It can be easily calculated by dividing Total Revenue (TR) by the number of units sold to the consumers. Thus, Average Revenue = Total Revenue + Number of units sold.

i.e., AR = \(\cfrac{TC}{Total\, Quantity\, Sold}\)

For example : If the Total Revenue from the sale of 10 units of commodity is ₹ 1000; then Average Revenue will be

AR = \(\cfrac{ TR}{Q}\) = \(\cfrac{1000}{10}\) = RS 100

(C) Marginal Revenue (MR) : Marginal Revenue is the net addition made to TR by selling an additional unit of the commodity. In other words, marginal revenue is the addition made to the total revenue by selling one more unit of a commodity.

Example : If the total revenue from the sale of 10 units is ?1000 and that from the sale of 11th unit the total revenue is 1020 then the MR of 11th unit will be.

MR_n = TR_n – TR_n-1 = 1020 – 1000 = 20

Or we can also calculate Marginal Revenue as

\(MR = \cfrac{Change\, in\, Total\, Revenue}{Change\, in\, Total\, of\, units\, sold}\)

\(MR = \cfrac{△TR}{△TQ} = \cfrac{20}{1} = 20\)

MR = 20

No, it does not justify the law of supply. As per law of supply, as the price increases, supply of a commodity should increase. But in above case even though the price is increasing supply remains the same. So it is an exception to the law of supply.

No, I do not agree with this statement.

• Transport facilities are one of the important determinants of supply.
• Modern speedy transport facilities in widening r the market.
• It increases the mobility of goods and helps in creating place utility for goods and services.
• Speedy transport helps in domestic as well; as international trade of goods and services.
• Thus, the above statement is false.

Assumptions of the Law of Supply : The law of supply is conditional. It is based on certain assumptions. 

They are as follows:

1. No change in Cost of Production: The law will hold true only if the cost of production remains constant.

2. No change in Technique of Production : It is assumed that there is no change in the method of production. If there is any improvement in the technique of production then supply will increase at the same price.

3. No change in Weather condition : Changes in weather and climatic condition would affect supply especially of agricultural products, so it is assumed to remain constant. 

4. No change in Government Policies : Any change in government policies will affect the supply, so it is assumed that there is no change in government tax policies, subsidies or industrial policy. 

5. No Speculations about Future Prices : It is assumed that the producers do not speculate about future changes in price.

6. No change in Transport Cost : It is assumed that there is no change in transport facility and transport cost. 

7. Prices of Other Goods : It is assumed that the prices of competitive goods remain constant. If the price of competitive goods rises then it is quite likely that producer may transfer his resource to the production of those goods, whose price has arisen. 

8. No change in the quantity of goods kept for Self – consumption : If sellers keep more goods for their personal use then supply cannot be increased even at a high price. 

9. Constant Scale of Production : It is assumed that the scale of production remains constant during the given period of time.

Yes, I agree with this statement. 

OR 

The supply curve slopes downward from left to right.

No, I do not agree with this statement.

• According to the Law of Supply “Other things remaining constant supply varies directly with price i.e., more quantity will be offered for sale at a higher price and less at a lower price. So there is a positive relationship between price and supply.”
• S = f(P)
• The supply curve which is a graphical representation of supply schedule slopes upward from left to right indicating a positive slope.
• In order to earn reasonable profit, the sellers try to sell more at higher prices and less at lower prices.
• The sellers earn more profit when market price is greater than their reservation price.
• Thus, the above statement is true.

Correct option: (a) need for cash

No, I do not agree with this statement.

1. Cost of Production : Changes in the price of factors of production like rent, wages, interest affects the cost of production. When cost of production increases, supply decreases. 

2. Price of Other Goods : The supply of a given commodity depends on the price of other commodity. E.g. if the price of wheat rises and that of rice remains the constant, then the producer will think of producing more of wheat. This will affect the supply of rice. 

3. price of the Commodity : Price is an important factor influencing the supply. More is supplied at a higher price and less at a lower price. So price and supply are 5 directly related.

4. Climatic Conditions : The supply of commodity is also influenced by the forces 

5. Government Policy : Government policies like taxation, subsidies, industrial policies etc., may encourage or discourage production and supply. A tax on the commodity will raise the cost of production and reduce the supply while a subsidy on the other hand will provide an incentive to increase production and supply. 

6. Exports and Imports : When the government resort to imports, supply expands, at the same time heavy exports would reduce the supply in the domestic market.

7. Nature of Market : In a competitive market, the supply would be more but in a monopoly market the seller may create artificial scarcity to raise the price. 

8. Future Expectation : If future trends indicate a rise in price, the supply decreases at present. On the other hand if the sellers expect the future price to fall, supply would increase in the current period.

9. Technique of Production : Improvement in the technique of production will lead to increase in supply. Application of advanced technology enables the producer to produce goods on large scale at a lower cost and lesser price. 

10. Infrastructure Facility : If means of transport and communication are well developed, the extent of market would be wide. i.e. supply will increase. 

11. Natural and Man-made Calamities : Natural calamities like earthquake, cyclone, flood etc., will affect the supply in the market. Even man-made calamities like a bomb-blast, affects supply. Even a strike call can affect supply in the market.

Correct option: (d) shift of supply curve to the right

Wrong pair : Average Cost – TR x TQ

Correct pair : Determinations of the law of supply – Infrastructural facility

Correct pair : Increases in supply – Technology up gradation

1. Rent 

2. Capital 

3. AR

4. Abdul Kalam 

5. Market supply

1. Production 

2. Output 

3. Stock 

4. Market Supply 

5. Fixed Cost

6. Reservation Price 

7. Variation in Supply 

8. Increase in Supply 

9. Decrease in Supply 

10. Variable Cost 

11. Marginal Revenue

Concept: Exception to the law of supply.

Explanation : As per the law of supply, when the price of a product rises, supply increases, but in this case supply cannot be increased. So, this is an exception to the law and its supply curve is a vertical straight line instead of upward sloping. Thus, this is an exception to the law.