Answer :

(a) This statement is false. Average cost curve and the average variable curve are u shaped. The vertical gap between both the curve is the average fixed cost curve. With the increase in the output, the average cost curves continue to decrease. So the gap between both the curves may decrease but they can never cut at any minimum level. Moreover, it is the marginal cost curve that cuts the average variable cost curve at the minimum.

(b) This statement is false. The average product curve and marginal product curve are inverse u shaped curves.

(c) This statement is false. The average revenue and marginal revenue are equal to each other only in perfect competition.

(d) This statement is true. The total cost curve and the total variable cost curve are parallel to each other because the difference between both the total cost and the total variable cost is the total cost which remains constant irrespective of the level of the output. So the distance between both the total cost curve and the total variable cost curve will be constant at all the levels of output.


The firm equilibrium means a situation in which the producer has maximized his profit and has no intention to make any change in his existing level of production or his existing expenditure on the means of production.

b. The profit of the firm in perfect competition is maximized at the point where the average revenue curve is equal to the marginal revenue curve and intersects at the marginal cost curve and the marginal cost curve should be Rising.

There are two conditions for the producer's equilibrium:

a. The marginal revenue should be equal to the marginal cost.

b. The marginal cost should be rising at the level of the output

The assumptions are:

a. Rational behavior of the producer.

b. The producer must aim at maximizing profit.

c. Price of the commodity, price of the means of the production and the technique of the production remains constant.

d. There is perfect competition in the market.

If the producer is producing 3 units of a commodity then marginal revenue is equal to the marginal cost i.e = 20.

This implies that the cost incurred in producing one additional unit is equal to the revenue received from the sale of that unit.

The producer is receiving normal profit on that unit but the total profit earned by him is reached to its maximum.

The producer will maintain this level of output for maximizing profit.

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