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CUET Economics 2025 PYQs30 May Shift 2. Free, no login required.

Micro

past year questions, CUET Economics 2025 30 May Shift 2

Production & Costs

past year questions, Micro, CUET Economics 2025 30 May Shift 2

Medium

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Long Run Costs

In the long run, all inputs are variable. There are no fixed costs. The total cost and the total variable cost therefore, coincide in the long run. Long run marginal cost is the change in total cost per unit of change in output. Increasing returns to scale implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. Decreasing returns to scale implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. Constant returns to scale implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. The LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed. For the first unit of output, both LRMC and LRAC are the same. Then, as output increases, LRAC initially falls, and then, after a certain point, it rises. As long as average cost is falling, marginal cost must be less than the average cost. When the average cost is rising, marginal cost must be greater than the average cost. LRMC cuts the LRAC curve from below at the minimum point of the LRAC.

The equation of long-run marginal cost.

Solution

✅ Correct Option: 2

Option 1 -> This represents Average Total Cost (TC/q), not Marginal Cost.

Option 2 -> This represents the change in Total Cost when output increases by one unit, which is the definition of Marginal Cost.

Option 3 -> This represents Average Variable Cost (TVC/q), not Marginal Cost.

Option 4 -> This represents Average Fixed Cost (TFC/q), not Marginal Cost. Additionally, in the long run, all costs are variable.

Hence, Option 2: (TC at q₁ units) – (TC at q₁ – 1 units) -> Marginal Cost is defined as the additional cost incurred from producing one more unit of output. In discrete terms, this is calculated as the difference in Total Cost between two consecutive output levels. The formula (TC at q₁ units) – (TC at q₁ – 1 units) captures this concept perfectly. In calculus terms, MC = dTC/dq, but when dealing with whole units, the discrete formula in Option 2 is used. In the long run, all inputs are variable, so long-run marginal cost follows the same principle of measuring the change in total cost per additional unit produced. -> correct

More from this set:

Question 42

As long as decreasing returns to scale operates, as the firm increases output, the average cost must be ................

Question 43

The optimum output will be when the relationship between LRMC and LRAC.

Question 44

in the long run when the average cost is rising, marginal cost must be.

Question 45

The shape of the long-run average cost curve and long-run marginal cost curve.

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