question_answer

State whether the following statements are true or false. Give reasons for your answer.

(i) When Marginal Revenue (MR) is constant and not equal to zero, then Total Revenue (TR) will also be constant.

(ii) As soon as Marginal Cost (MC) starts rising. Average Variable Cost (AVC) also starts rising.

(iii) Marginal Product (MP) starts diminishing from the point of inflexion.

Answer:

(i) False, because when Marginal Revenue (MR) is constant, Total Revenue (TR) is increasing at a constant rate. Only when Marginal Revenue is zero, Total Revenue is constant. (ii) False, Average Variable Cost (AVC) can fall even when Marginal Cost (MC) starts rising. In the figure given, MC is at its minimum at point 'a' and AVC is at its minimum at point 'b'. Between points 'a' to 'b', MC is rising, but AVC is falling. Output (units) Diagram Showing Marginal Cost and Average Variable Cost Curve (iii) True, because point of inflexion is a point from where slope of Total Product (TP) changes. And, Slope of TP=MP. Therefore, from this point, MP stops increasing and starts diminishing.