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10 / 14

14.

15.

16.

Relation between ATC and AVC.

  • 1.

    ATC is greater than AVC by the amount of AFC.

  • 2.

    The difference between ATC and AVC decreases as more output is produced

because AFC declines as level of output increases. For Blind Candidates in lieu of Q. No.14

(3) (1½)

(1½)

  • (i)

    Relation between ATC and AVC (Same as above)

  • (ii)

    Relation between MC and AVC :

    • (a)

      When MC> AVC, AVC falls

    • (b)

      When MC= AVC, AVC is constant

    • (c)

      When MC< AVC, AVC falls

(3)

(1x3)

Consumer’s equiibrium means allocation of income by a consumer on goods and services in a manner that gives him maximum satisfaction.

(2)

The two conditions of consumer’s equibrium are :

(i)

Ratio of marginal utility to price in case of each good is the same i.e.

MUx Px

=

MUy Py

(2)

(ii) (i)

MU of a good decreases as more of it is consumed.

(2)

It means that TPP increases at an increasing rate and consequently MPP rises. It is due to (a) more efficient utilization of fixed input and (b) division of labour

and specialisation due to increase in the quantity of variable input.

(3)

(ii)

It means output increasing in greater proportion than the increase in all input simultaneously and in the same proportion. It is due to (a) more division of labour leading to specialisation that increases produtivilty and(b) use of specialized machines.

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