Production and Costs explains how firms combine inputs, produce output and calculate production cost.
These NCERT Solutions help students answer Chapter 3 questions on production function, TP, MP, AP and costs.
Production and Costs is a Class 12 Microeconomics chapter, although students may search it as NCERT Solutions Class 12 Macro Economics Chapter 3. The chapter studies how firms use labour, capital, land, machines and raw materials to produce output. It explains production function, short run, long run, total product, average product, marginal product and cost behaviour. These solutions help students solve Class 12 Economics Chapter 3 Production and Costs questions with formulas, schedules and clear workings for 2026-27 exams.
Key Takeaways
- Production function: It shows maximum output possible from different input combinations.
- Short run: At least one factor remains fixed in the short run.
- Marginal product: MP first rises and then falls under the law of variable proportions.
- Total cost: TC is the sum of total fixed cost and total variable cost.
NCERT Solutions Class 12 Micro Economics Chapter 3 Structure 2026-27
| Exercise Area |
Main Concept |
Question Range |
| Production |
Production function, TP, AP, MP and returns |
Q1 to Q11 |
| Costs |
Cost function, fixed cost, variable cost and curves |
Q12 to Q21 |
| Numericals |
Product schedules, cost schedules and production functions |
Q22 to Q30 |
Exercises
The exercise in Class 12 Micro Economics Chapter 3 Production and Costs tests definitions, relationships, curves and numerical schedules. These Production and Costs Class 12 questions and answers follow the NCERT order and also support students searching for NCERT Solutions Class 12 Macro Economics Chapter 3.
1. Explain the concept of a production function.
Answer: A production function shows the relationship between inputs used and output produced by a firm.
It gives the maximum output possible from different combinations of inputs.
For example, if labour and capital are used to produce wheat, the production function shows maximum wheat output.
A common form is:
q = f(L, K)
Here, q is output, L is labour, and K is capital.
The production function is defined for a given technology.
2. What is the total product of an input?
Answer: Total product is the total output produced by a variable input.
It is calculated when other inputs are kept constant.
For example, if capital is fixed and labour changes, total product shows output at each labour level.
It is also called total physical product.
3. What is the average product of an input?
Answer: Average product is output per unit of variable input.
Formula:
AP = TP / L
Here, AP is average product, TP is total product, and L is labour.
It shows the average contribution of each unit of the variable input.
4. What is the marginal product of an input?
Answer: Marginal product is the change in output due to one extra unit of input.
Formula:
MP = Change in TP / Change in L
When labour increases by one unit, MP shows the extra output produced.
It is undefined at zero input level.
5. Explain the relationship between marginal product and total product of an input.
Answer: Total product is the sum of marginal products.
When marginal product is positive, total product rises.
When marginal product increases, total product rises at an increasing rate.
When marginal product falls but remains positive, total product rises at a decreasing rate.
If marginal product becomes negative, total product falls.
So, marginal product explains the rate of change in total product.
6. Explain the concepts of the short run and the long run.
Answer: Short run is a period in which at least one factor of production remains fixed.
In the short run, a firm can change only the variable factor.
For example, capital may remain fixed while labour changes.
Long run is a period in which all factors can be varied.
In the long run, there is no fixed factor.
Short run and long run are based on input flexibility, not calendar time.
7. What is the law of diminishing marginal product?
Answer: The law of diminishing marginal product says that MP eventually falls.
It applies when one factor is increased while other factors remain fixed.
Initially, MP may rise because factor proportions improve.
After a point, the fixed factor becomes crowded.
Then each extra unit of variable input adds less output.
This causes marginal product to fall.
8. What is the law of variable proportions?
Answer: The law of variable proportions explains output change in the short run.
It says that when one input is increased and other inputs are fixed, marginal product first rises and then falls.
The law operates because factor proportions keep changing.
In the beginning, inputs combine better.
After a point, too much variable input is used with the fixed input.
This reduces the additional output from each extra unit.
9. When does a production function satisfy constant returns to scale?
Answer: Constant returns to scale occur when output rises in the same proportion as inputs.
If all inputs double and output also doubles, the production function shows constant returns to scale.
Formula:
f(tL, tK) = t f(L, K)
Here, t is greater than 1.
10. When does a production function satisfy increasing returns to scale?
Answer: Increasing returns to scale occur when output rises by a larger proportion than inputs.
If all inputs double and output more than doubles, the production function shows increasing returns to scale.
Formula:
f(tL, tK) > t f(L, K)
It usually appears at the initial level of production.
11. When does a production function satisfy decreasing returns to scale?
Answer: Decreasing returns to scale occur when output rises by a smaller proportion than inputs.
If all inputs double but output less than doubles, the production function shows decreasing returns to scale.
Formula:
f(tL, tK) < t f(L, K)
It can occur when a firm becomes too large to manage efficiently.
12. Briefly explain the concept of the cost function.
Answer: A cost function shows the least cost of producing each output level.
A firm can produce output through different input combinations.
It chooses the least expensive combination for each output level.
So, the cost function depends on technology and input prices.
It helps the firm decide cost-minimising production.
13. What are total fixed cost, total variable cost and total cost of a firm? How are they related?
Answer: Total fixed cost is the cost of fixed factors.
It does not change with output in the short run.
Total variable cost is the cost of variable factors.
It changes when output changes.
Total cost is the sum of fixed cost and variable cost.
Formula:
TC = TFC + TVC
At zero output, total cost equals fixed cost.
14. What are average fixed cost, average variable cost and average cost of a firm? How are they related?
Answer: Average fixed cost is fixed cost per unit of output.
Formula:
AFC = TFC / q
Average variable cost is variable cost per unit of output.
Formula:
AVC = TVC / q
Average cost is total cost per unit of output.
Formula:
AC = TC / q
Since TC = TFC + TVC,
AC = AFC + AVC
15. Can there be some fixed cost in the long run? If not, why?
Answer: No, there is no fixed cost in the long run.
In the long run, all inputs can be changed.
A firm can vary labour, capital, machines, land and scale of production.
So, every cost becomes variable in the long run.
That is why total cost and total variable cost coincide in the long run.
16. What does the average fixed cost curve look like? Why does it look so?
Answer: The average fixed cost curve slopes downward.
It is shaped like a rectangular hyperbola.
AFC falls as output increases because total fixed cost remains constant.
Formula:
AFC = TFC / q
When q rises, the same fixed cost spreads over more units.
So, AFC keeps falling but never becomes zero.
17. What do the short run marginal cost, average variable cost and short run average cost curves look like?
Answer: SMC, AVC and SAC curves are U-shaped.
SMC first falls and then rises.
AVC also first falls and then rises.
SAC falls first because both AFC and AVC fall.
After a point, AVC rises more than AFC falls.
Then SAC starts rising.
18. Why does the SMC curve cut the AVC curve at the minimum point of the AVC curve?
Answer: SMC cuts AVC at AVC’s minimum point.
When SMC is less than AVC, AVC falls.
When SMC is greater than AVC, AVC rises.
So, AVC is minimum where SMC becomes equal to AVC.
That is why SMC cuts AVC from below at its minimum point.
19. At which point does the SMC curve cut the SAC curve? Give reason.
Answer: SMC cuts SAC at the minimum point of SAC.
When SMC is less than SAC, SAC falls.
When SMC is greater than SAC, SAC rises.
At the minimum point, SMC equals SAC.
So, SMC cuts SAC from below at SAC’s minimum point.
20. Why is the short run marginal cost curve U-shaped?
Answer: The SMC curve is U-shaped because of the law of variable proportions.
Initially, marginal product rises.
So, less variable input is needed for each extra unit of output.
This makes marginal cost fall.
After a point, marginal product falls.
Then more variable input is needed for each extra unit.
This makes marginal cost rise.
21. What do the long run marginal cost and average cost curves look like?
Answer: LRMC and LRAC curves are U-shaped.
LRAC falls when increasing returns to scale operate.
It remains stable when constant returns to scale operate.
It rises when decreasing returns to scale operate.
LRMC cuts LRAC from below at the minimum point of LRAC.
Numerical Questions
These numerical solutions are part of NCERT Solutions Class 12 Micro Economics Production and Costs. Students should use formulas first, then prepare AP, MP, TVC, AVC, SAC and SMC schedules.
22. The following table gives the total product schedule of labour. Find AP and MP schedules.
| L |
TP |
AP = TP/L |
MP = Change in TP |
| 0 |
0 |
- |
- |
| 1 |
15 |
15 |
15 |
| 2 |
35 |
17.5 |
20 |
| 3 |
50 |
16.67 |
15 |
| 4 |
40 |
10 |
-10 |
| 5 |
48 |
9.6 |
8 |
Answer: AP is calculated by dividing TP by labour.
MP is calculated as the change in TP when labour increases by one unit.
23. The following table gives AP schedule. Find TP and MP schedules.
Given TP is zero at zero labour employment.
| L |
AP |
TP = AP × L |
MP = Change in TP |
| 0 |
- |
0 |
- |
| 1 |
2 |
2 |
2 |
| 2 |
3 |
6 |
4 |
| 3 |
4 |
12 |
6 |
| 4 |
4.25 |
17 |
5 |
| 5 |
4 |
20 |
3 |
| 6 |
3.5 |
21 |
1 |
Answer: TP is found by multiplying AP with labour.
MP is the change in TP from one labour level to the next.
24. The following table gives MP schedule. Calculate TP and AP schedules.
Given TP is zero at zero labour employment.
| L |
MP |
TP |
AP = TP/L |
| 0 |
- |
0 |
- |
| 1 |
3 |
3 |
3 |
| 2 |
5 |
8 |
4 |
| 3 |
7 |
15 |
5 |
| 4 |
5 |
20 |
5 |
| 5 |
3 |
23 |
4.6 |
| 6 |
1 |
24 |
4 |
Answer: TP is the cumulative sum of MP.
AP is calculated by dividing TP by labour.
25. Given the total cost schedule, find TFC, TVC, AFC, AVC, SAC and SMC.
| Q |
TC |
TFC |
TVC |
AFC |
AVC |
SAC |
SMC |
| 0 |
10 |
10 |
0 |
- |
- |
- |
- |
| 1 |
30 |
10 |
20 |
10 |
20 |
30 |
20 |
| 2 |
45 |
10 |
35 |
5 |
17.5 |
22.5 |
15 |
| 3 |
55 |
10 |
45 |
3.33 |
15 |
18.33 |
10 |
| 4 |
70 |
10 |
60 |
2.5 |
15 |
17.5 |
15 |
| 5 |
90 |
10 |
80 |
2 |
16 |
18 |
20 |
| 6 |
120 |
10 |
110 |
1.67 |
18.33 |
20 |
30 |
Answer: TFC is Rs 10 because TC at zero output is Rs 10.
TVC = TC - TFC
AFC = TFC / Q
AVC = TVC / Q
SAC = TC / Q
SMC = Change in TC
26. Given TC schedule and AFC at 4 units is Rs 5. Find all cost schedules.
AFC at 4 units = Rs 5
TFC = AFC × Q
TFC = 5 × 4
TFC = Rs 20
| Q |
TC |
TFC |
TVC |
AFC |
AVC |
SAC |
SMC |
| 1 |
50 |
20 |
30 |
20 |
30 |
50 |
30 |
| 2 |
65 |
20 |
45 |
10 |
22.5 |
32.5 |
15 |
| 3 |
75 |
20 |
55 |
6.67 |
18.33 |
25 |
10 |
| 4 |
95 |
20 |
75 |
5 |
18.75 |
23.75 |
20 |
| 5 |
130 |
20 |
110 |
4 |
22 |
26 |
35 |
| 6 |
185 |
20 |
165 |
3.33 |
27.5 |
30.83 |
55 |
Answer: Since TFC is Rs 20, TC at zero output is also Rs 20.
SMC for the first unit is 50 - 20 = Rs 30.
27. A firm’s SMC schedule is given. TFC is Rs 100. Find TVC, TC, AVC and SAC.
| Q |
SMC |
TVC |
TC |
AVC |
SAC |
| 0 |
- |
0 |
100 |
- |
- |
| 1 |
500 |
500 |
600 |
500 |
600 |
| 2 |
300 |
800 |
900 |
400 |
450 |
| 3 |
200 |
1000 |
1100 |
333.33 |
366.67 |
| 4 |
300 |
1300 |
1400 |
325 |
350 |
| 5 |
500 |
1800 |
1900 |
360 |
380 |
| 6 |
800 |
2600 |
2700 |
433.33 |
450 |
Answer: TVC is the sum of SMC up to that output level.
TC = TVC + TFC
AVC = TVC / Q
SAC = TC / Q
28. Let the production function be Q = 5L¹ᐟ²K¹ᐟ². Find maximum output with L = 100 and K = 100.
Answer: Maximum output is 500 units.
Given:
Q = 5L¹ᐟ²K¹ᐟ²
L = 100
K = 100
Substitution:
Q = 5 × √100 × √100
Q = 5 × 10 × 10
Q = 500
So, maximum possible output is 500 units.
29. Let the production function be Q = 2L²K². Find output with L = 5 and K = 2. Also find output with L = 0 and K = 10.
Answer: With L = 5 and K = 2, output is 200 units.
Substitution:
Q = 2L²K²
Q = 2 × 5² × 2²
Q = 2 × 25 × 4
Q = 200
With L = 0 and K = 10:
Q = 2 × 0² × 10²
Q = 0
So, output is 0 units when labour is zero.
30. Find maximum output when Q = 5L + 2K, L = 0 and K = 10.
Answer: Maximum output is 20 units.
Given:
Q = 5L + 2K
L = 0
K = 10
Substitution:
Q = 5(0) + 2(10)
Q = 0 + 20
So, maximum possible output is 20 units.
Production Function Class 12 Economics: Core Concepts
The uploaded NCERT chapter belongs to Class 12 Micro Economics Chapter 3 Production and Costs. So, the concept sections below follow the textbook topic while keeping the searched keyword context clear.
Production function class 12 economics questions ask how inputs and output are connected. A production function gives maximum output from efficient input use.
Inputs and Output
Inputs are factors used in production.
Output is the final good or service produced.
Labour and Capital
Labour means human effort used in production.
Capital includes machines, tools and buildings used in production.
Technology
Technology decides how much output inputs can produce.
Improved technology creates a new production function.
Isoquant
An isoquant shows input combinations that produce the same output.
It slopes downward when marginal products are positive.
Law of Variable Proportions Class 12: TP, AP and MP
Law of variable proportions class 12 answers should mention one fixed input and one variable input. The law explains why marginal product first rises and then falls.
Total Product
Total product is total output produced by variable input.
It rises when variable input increases.
Average Product
Average product is output per unit of variable input.
Formula:
AP = TP / L
Marginal Product
Marginal product is extra output from one more unit of input.
Formula:
MP = Change in TP / Change in L
Relationship Between MP and AP
When MP is greater than AP, AP rises.
When MP is less than AP, AP falls.
MP cuts AP at AP’s maximum point.
Cost Function Class 12 Microeconomics: Cost Curves
Cost function class 12 microeconomics answers should separate short run and long run costs. Short run has fixed costs, while long run has no fixed costs.
Total Fixed Cost
TFC remains constant at all output levels.
It exists only in the short run.
Total Variable Cost
TVC changes with output.
It is zero when output is zero.
Total Cost
Total cost is the sum of TFC and TVC.
Formula:
TC = TFC + TVC
Average Cost
Average cost is total cost per unit.
Formula:
AC = TC / Q
Marginal Cost
Marginal cost is extra cost of producing one more unit.
Formula:
MC = Change in TC / Change in Q
Useful Links for Class 12 Macro Economics