QB CH-3 Questions

3 PRODUCTION & COST CONCEPTS

  1. Which of the following statement is True? Production can be defined as –
  • Creation or addition of utility
  • Conversion of raw material into finished goods
  • An activity of making something immaterial
  • All of these
  1. Which of the following statements regarding service Industry is true?
  • Service Industry uses less Capital Equipment
  • Service industry uses more capital
  • Service industry uses no capital equipment
  • Service industry uses less variable factors
  1. Hawking of fruits and Vegetables by a Street Vendor Company is an example of production Activity. This statement is-
  • True
  • False
  • Partially true
  • None of the above
  1. In Production Activity, one of the ways of creating utility is –
  • Form utility
  • Marginal utility
  • Total utility
  • All of the above
  1. Making furniture from raw wood is an example of creation of –
  • Form utility
  • Place utility
  • Time utility
  • Personal utility
  1. If apples from Kashmir are available for sale in Chennai, it refers to creation of –
  • Form utility
  • Place utility
  • Time utility
  • Personal utility
  1. Moving or distributing goods from places of production (Origin centres) to Markets (destination centres) refers to creation of-
  • Form utility
  • Place utility
  • Time utility
  • Personal utility
  1. Place utility involves changing the place of the resources, from the place where they are of …….. use, to another place where they are of …… use.
  • Lesser, greater
  • Greater, lesser
  • Specific, general
  • General, specific
  1. Storing harvested food grains for use till next harvest is an example of creation of –
  • Form utility
  • Place utility
  • Time utility
  • Personal utility
  1. Work of professionals like doctors, chartered Accountants, etc. can be considered under –
  • Form utility
  • Place utility
  • Time utility
  • Personal utility
  1. The demand for a factor of production is said to be a Derived Demand because-
  • It is a function of the profitability of an enterprise
  • It depends on the supply of complementary factors
  • Its stems from the demand for the final product
  • It arises out of means being scarce in relation to wants.
  1. Which of these is an example of land as a Factor of Production?
  • Agricultural lands
  • Forests
  • Diamonds mines
  • All of the above
  1. Which of these is included in “Land” as a factor of Production?
  • Fertility of Soil
  • Water
  • Air
  • All of the above
  1. As a factor of production, the supply of land is perfectly inelastic from the viewpoint of –
  • The entire economy
  • An individual firm
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. ….. refers to mental or physical exertion direction to produce goods or services, and with a view to gain an economic reward.
  • Land
  • Enterprise
  • Capital
  • Labour
  1. To have an economic significance, labour must be done with –
  • The motive of some economic reward
  • The motive of pleasure and satisfaction
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. As a factor of production, “Labour” is a ……. Means of production.
  • Original
  • Produced
  • Derived
  • Monetary
  1. “labour” , as a factor of production involves –
  • Econonic considerations only
  • Human and psychological considerations
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. As a factor of production involves-
  • Perishable
  • Permanent
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. As a factor of production, “Labour” is perishable. This means that –
  • A day’s labour lost cannot be completely recovered subsequently.
  • Every human being is mortal and will have to leave this world some day or the other.
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. As a factor of Production, a day’s “Labour” lost cannot be –
  • Measured at all
  • Recovered at all
  • Completely recovered
  • None of the above
  1. As a factor of production, “labour” is perishable. The consequence of this is –
  • There is no reserve price for labour.
  • The labourer has to accept the wage offered to him.
  • The labour has weak bargaining power.
  • All of the above
  1. If a worker terminates his employment with company X, he –
  • Can get employed in another company
  • Cannot get employed in any company at all
  • Becomes the owner of company X
  • Will not get any wages at all
  1. All labour is not productive in the sence that all efforts are not sure to produce want-satisfying goods and services. This statement is –
  • True
  • False
  • Partially true
  • None of these
  1. Generally, supply of labour and wage rates are ……… related.
  • Directly
  • Inversely
  • Equally
  • Not related at all
  1. Direct relationship between wage rates and supply of labour means that –
  • Increase in Wage rates will decrease the supply of labour
  • Decrease in wage rates will increase the supply of labour
  • Increase in wage rates will increase the supply of labour
  • Increase in wage rates will not affect the supply of labour at all
  1. Generally, supply of Labour and wage rates are directly related. However, at very high wage rates, there is a paradox of reduction in labour. This paradox is attributed to –
  • Preference to earn more money
  • Preference to have more of rest and leisure
  • Preference to restrict supply
  • None of the above
  1. Generally, supply of labour and wage rates are directly related. However, at very low wage rates, there is a paradox of excess supply of labour. This paradox is attributed to –
  • Some more members of the family, who were not working before, may start working.
  • Workers may prefer to work overtime to increase their earnings.
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Supply of labour and wage rates may become inversely related at –
  • Very high wage rates
  • Very low wage rates
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Which of the following statements is not true that labour economies?
  • Larger scale of production enables the division of labour
  • Division of labour is not profitable at small scale of production
  • Division of labour results in improving worker’s skills
  • Division of labour is impossible in firms with large scale production
  1. All capital is wealth, but all wealth is not capital. This statement is –
  • True
  • False
  • Partially true
  • None of the above
  1. If a resource is lying idle, it will constitute –
  • Wealth
  • Capital
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. As a factor of production, “Tools and accessories” constitute –
  • Land
  • Labour
  • Capital
  • Enterprise
  1. “Capital” is considered as a “produced means of production”. This statement is –
  • True
  • False
  • Partially true
  • None of the above
  1. Capital formation means –
  • A sustained increase in the stock of real capital in a country
  • Production of more capital goods, which are used for further production of goods.
  • Investments
  • All of the above
  1. Capital formation is required for –
  • Replacement and renovation of existing machinery and equipments
  • Creating additional productive capacity
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. For the purpose of capital formation-
  • Current consumption is to be sacrificed to a certain extent
  • Current income should be saved
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. A 100% consumption Economy-
  • Cannot have any capital formation
  • Will become static and cannot grow
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Capital formation involves –
  • Creation of savings
  • Mobilization of savigs
  • Investment of savings into real capital
  • All of the above
  1. For the purpose of capital formation, which of the following create maximum “savings” in an economy?
  • Individuals or households
  • Business enterprises
  • Government
  • None of the above
  1. Ability to save depends upon-
  • Average level of income
  • Distribution of national income.
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. If there is an increase in income levels, the …….. reduces.
  • Propensity to consume
  • Propensity to save
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. If there is an increase in income levels, the ……… increases.
  • Propensity to consume
  • Propensity to save
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Willingness to save depends upon –
  • An individual’s concern about his future
  • Social setup in which of the individual
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. ….. save by reducing their present consumption.
  • Individuals or households
  • Business enterprises
  • Government
  • All of the above
  1. …… save by way of Retained earnings, i.e. undistributed profits.
  • Individuals or households
  • Business enterprises
  • Government
  • All of the above
  1. Which of these play a role in mobilization of savings in an economy?
  • Banks
  • Financial institutions
  • Capital market
  • All of the above
  1. Real capital formation requires –
  • An entrepreneurial class which is prepared to bear the risk of business
  • Economic an industrial policies in which investment is given initiative
  • An inducement to invest, e.g. prospective rate of profit
  • All of the above
  1. Inducement to invest is influenced by –
  • Prospective rate of profit
  • Rate of interest
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Entrepreneurship is a wider term than organization and management of a business. This statement is –
  • True
  • False
  • Partially true
  • None of the above
  1. Entrepreneur –
  • Is the catalyst in the process of using the factors of production.
  • Gives direction to the usage of other factors of production
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Entrepreneurship gets its reward (i.e. profit), only after all other factors of production have been rewarded. This statement is –
  • True
  • False
  • Partially true
  • None of the above
  1. The reward / incentive / remuneration for entrepreneurship is a ….. amount.
  • Fixed
  • Variable
  • Semi-variable
  • Irrelevant
  1. Which of the following constitute innovation?
  • Introduction of a new or improved product
  • Utilization of new or improved source of raw material
  • Introduction of new or improved production methods / machinery
  • All of the above
  1. Production function explains the relationship between –
  • Maximum output which can be produced from given units of different inputs
  • Price and cost
  • Maximum output which can be produced at various points of time
  • Various stages of production
  1. Production function specifies –
  • Maximum amount of output that can be produced with given quantities of inputs
  • Minimum quantities of various inputs that are required to yield a given quantity of output.
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. In general, most of the production functions measure-
  • Productivity of factors of production.
  • Relationship between the factors of production
  • Economies of scale
  • Relationship between change in physical inputs and physical output.
  1. Which of the following activities cannot take place in the short-run?
  • Changing the quantity of labour employed
  • Changing the input combination
  • Regular maintenance of the plant to ensure efficient production
  • Installation of an additional plant to meet future requirements
  1. The short run, as economists use the phrase, is characterized by –
  • At least one fixed factor of production and firms neither leaving nor entering the industry
  • A period where the law of diminishing returns does not hold
  • No variable inputs – that is all of the factors of production are fixed
  • All inputs being variable
  1. In the long-run, the quantity of factors of production
  • Remains constant
  • Changes
  • Is zero
  • Is infinity
  1. Which of the following statements regarding short run and long run is true?
  • Firms plan for the long run but operate in the short run
  • Firms plan in the short run but operate in the long run
  • Firms operate and plan as well in the long run
  • Firms operate and plan as well in the short run
  1. To economist, the main difference between the short run and the long run is what –
  • In the short run all inputs are fixed, while in the long run all inputs are variable
  • In the short run the firm varies all of its inputs to find the least-cost combination of inputs
  • In the short run, at least one of the firm’s input levels is fixed
  • In the long run, the firm is making a constrained decision about how to use existing plant and equipment efficiently
  1. Which of the following statements regarding product and process innovation is true?
  • It is difficult to quantity product innovation, as compared to process innovation
  • It is difficult to quantity process innovation, as compared to product innovation
  • Neither of the innovation types can quantified
  • Quantifying both the innovation types is equal easy / difficult
  1. ……… innovation is of more importance as it helps in increasing the standard of living in the long run
  • Process
  • Product
  • Plant
  • There is no relationship between innovation processes and standard of living
  1. …….. is the change in total product, for one unit change in the quantity of variable factor.
  • Total product
  • Average product
  • Marginal product
  • All of the above
  1. What is the maximum point of TP?
  • When AP becomes zero
  • When MP becomes zero
  • At the intersecting point of AP & MP
  • None of these
  1. Marginal product (MP) –
  • Will have positive values only
  • Will have negative values ony
  • Can be positive or zero or even negative
  • Can be positive or zero, but not negative
  1. Average product (AP) –
  • Will have positive values only
  • Will have negative values only
  • Can be positive or zero or even negative
  • Can be positive or zero, but not negative
  1. What is the relationship between AP and MP?
  • AP and MP both rise first and thereafter fall
  • MP curves always lies half-way between AR curve and Origin
  • AP and MP both can be zero or negative
  • All of these
  1. If average product (AP) curve is depicted on a graph with quantity on X axis –
  • AP will not go below the x axis.
  • AP may go below the X axis.
  • AP cannot be depicted on the graph at all
  • None of the above
  1. When average product (AP) rises as a result of an increase in the quantity of variable input-
  • MP < AP
  • MP = AP
  • MP > AP
  • There is no relationship between MP and AP
  1. When Average product (AP) decreases as a result of an increase in the quantity of variable input –
  • MP is more than AP
  • MP is less than AP
  • MP = AP
  • There is no relationship between MP and AP
  1. If the Marginal Product of Labour is below the Average product of labour, it must be true that
  • The marginal product of labour is negative
  • The marginal product of labour is zero
  • The average product of labour is falling
  • The average product of labour is negative
  1. Marginal product (MP) curve cuts Average Product (AP), when –
  • MP < AP
  • MP = AP
  • MP > AP
  • MP = 0
  1. Marginal product (MP) curve cuts average product (AP) curve –
  • From above
  • From below
  • MP does not cut AP at all
  • Nothing can be said
  1. The marginal, average, and Total product curves encountered by the firm producing in the short run exhibit all of the firm producing in the short run exhibit all of the following relationship except-
  • When Total product is rising, average and marginal product may be either rising or falling
  • When marginal product is negative, total product and average product are falling
  • When average product is at a maximum, marginal product equals average product, and total product is rising
  • When marginal product is at a maximum, average product equals marginal product, and total product is falling.
  1. The law of …… deals with input – output relationship, when the output is increased by varying the quantity of one input.
  • Variable proportions
  • Supply
  • Demand
  • Returns to scale
  1. Which of the following is an assumption in the law of variable proportions?
  • The fixed factor of production is scarce
  • There are no perfect substitutes for the fixed factor
  • Factors of production can be used in any proportion
  • All of the above
  1. Which of the following is not an assumption in the Law of variable Proportions?
  • There are no perfect substitutes for the fixed factor
  • Only one factor input is considered variable while all other factors are fixed.
  • State of technology is improved as more output is produced
  • Only physical quantities of inputs and outputs are considered
  1. As per Law of variable proportions, as the quantity of one input which is combined with other fixed variable input must eventually decline.
  • Total productivity
  • Average productivity
  • Marginal productivity
  • All the above
  1. When a factory is working at 70% capacity, increasing of variable inputs, leads to –
  • Increasing of output
  • Decreasing of output according to the law of diminishing returns
  • Increasing of output up to full capacity and later decreasing of the marginal product  according to the law of diminishing returns
  • Decreasing of output up to full capacity and later increasing of the output
  1. Which of the following is not a stage in law of variable proportions?
  • Increasing returns
  • Constant returns
  • Diminishing returns
  • Negative returns
  1. A firm is operating at an output level, where its total product is increasing at an increasing rate. This implies that the firm’s
  • Marginal cost must be falling at an increasing rate
  • Marginal product is increasing at a increasing rate
  • Average product is increasing
  • Both (a) and (c)
  1. The stage of diminishing returns applies from …….. to ………
  • Origin to point where AP is maximum
  • Point where AP is maximum to point when TP is maximum
  • Point when TP declines and MP becomes negative
  • All the above
  1. Diminishing returns occur –
  • When units of a variable input are added to a fixed input and total product falls.
  • When units of a variable input are added to a fixed input and marginal product falls
  • When the size of the plant is increased in the long run
  • When the quantity of the fixed input is increased and returns to the variable input falls
  1. In which stage of production are the average product and marginal product decreasing with the marginal product decreasing above zero (positive)?
  • In the stage of constant returns
  • In the stage of decreasing returns
  • In the stage of increasing returns
  • Both (a) and (c)
  1. The stage of negative marginal returns applies from …… to …… ..
  • Origin to point where AP is maximum
  • Point where AP is maximum to point When TP is maximum
  • Point when TP declines and MP becomes negative
  • All the above
  1. Which of the following stages of production is known as stage of negative returns?
  • When AP is negative
  • When MP is decreasing
  • When MP is negative
  • Both (a) and (b)
  1. In which of the following situations, the law of variable proportions will not apply?
  • Improvement in technology
  • When all factors are proportionately varied
  • Where the factors are must be used in fixed proportions to yield the product
  • All of the above
  1. In case of …… , MP and AP may rise instead of falling .
  • Constant state of technology
  • Improvement in technology
  • Erosion / reduction in technology
  • All of the above
  1. A rational producer will not operate in stage I due to the reason that –
  • There is more scope for making the best use of the fixed factor
  • Total output still shows an increasing trend
  • Optimal combination of fixed and variable factors is not yet achieved
  • All of the above
  1. A rational producer will not operate in stage III due to the reason that –
  • The fixed factor has become over – used and inefficient
  • There is a reduction in Total output
  • The MP of the variable factors is negative
  • All of the above
  1. In which stage of production would a rational entrepreneur like to operate?
  • Stage 1 where MP is maximum
  • State 2 where both MP and AP are decreasing, but both are positive
  • Stage 3 where MP is negative
  • Either stage 2 or 3
  1. Under the law of returns to scale, ……. Is constant.
  • Output quantities
  • Quantities of variable factors of production
  • Quantities of variable and fixed factors of production
  • Proportion between different factors of production
  1. In a small scale rubber plant, factors of production like labour, material and capital are increased by 10% and output increases. It implies that the firm is experiencing………
  • Constant returns to scale
  • Decreasing returns to scale
  • Increasing returns to scale
  • Increasing as well as decreasing
  1. If as a result of 50% increase in all inputs, the output rises by 75%, this is a case of :
  • Increasing returns to a factor
  • Increasing returns to scale
  • Constant returns to a factor
  • Constant returns to a scale
  1. If decreasing returns to scale are present, then if all inputs are increased by 10% then
  • Output will also decrease by 10%
  • Output will increase by 10%
  • Output will increase by less than 10%
  • Output will increase by more than 10%
  1. In electricity generation plants, when the plant grows too large risks of plant failure with regard to output increase disproportionately. Hence we are talking about which concept of returns to scale?
  • Constant returns to scale
  • Increasing returns to scale
  • Decreasing returns to scale
  • Balanced returns to scale
  1. Problems like managerial difficulties, low employee morale, higher input prices, etc. arising out of large scale operations lead to –
  • Large economies of scale
  • Pecuniary economies of scale
  • Real economies of scale
  • Diseconomies of scale
  1. Diseconomies of scale refer to –
  • Forces which reduce the average cost of producing a product as the firm expands the size of its plant
  • Forces which reduce the marginal cost of producing a product as the firm expands the size of its plant
  • Forces which increase the average cost of producing a product as the firm expands the size of its plant
  • Forces which increase the marginal cost of producing a product as the firm the size of its plant
  1. Internal economies and diseconomies arise due to –
  • Overall industry – level changes
  • Changes at the firm level
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. External economies and diseconomies arise due to –
  • Overall industry – level changes
  • Changes at the firm level
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Inventory economies are a part of which o the following type of economies of scale?
  • Production
  • Selling
  • Labour
  • Storage and transport
  1. …….. economies result from the use of specialized equipment and modern techniques of production.
  • Marketing
  • Selling
  • Managerial
  • Production
  1. Which of the following is an important ingredient of selling economies?
  • Advertising economies
  • Inventory economies
  • Transportation economies
  • Storage economies
  1. Which of the following is not a type of pecuniary economies of scale?
  • Reduction in prices of raw materials, as a result of discounts due to large volumes from the suppliers
  • Lower cost of external finance as banks often offer loans to large firms at a lower rate of interest
  • Lower advertising rates for large firms if they advertise at large scales
  • Economies achieved by increasing the scale of output mainly due to division of labour
  1. Availability of cheaper raw materials and capital equipment in the long-run constitutes-
  • Internal economies of scale
  • Internal diseconomies of scale
  • External economies of scale
  • External diseconomies of scale
  1. Delays in internal communication due to complex management structure is an example of –
  • Internal economies of scale
  • Internal diseconomies of scale
  • External economies of scale
  • External diseconomies of scale
  1. When a large firm makes bulk purchase and obtains its raw materials at lower price than a small size firm, the large firm is said to have achieved –
  • Internal economies of scale
  • Internal diseconomies of scale
  • External economies of scale
  • External diseconomies of scale
  1. Internal and external economies and diseconomies of scale has its impact on –
  • Long run average cost (LAC) curve
  • Short run average cost (SAS) curve
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Due to external economies of scale, the long run average cost (LAC) curve-
  • Shifts inward
  • Remains constant
  • Shifts outward
  • Is not affected at all
  1. Due to external Diseconomies of scale, the long run average cost (LAC) curve-
  • Shifts inward
  • Remains constant
  • Shift outward
  • Is not affected at all
  1. If the LAC curve falls as output expands, this is due to –
  • Law of Diminishing returns
  • Economies of scale
  • Law of variable proportions
  • Diseconomies of scale
  1. Identity the correct statement
  • Average product is at its maximum when marginal product is equal to average product
  • Law of increasing returns to scale relates to the effect of changes in factor proportions
  • Economies of scale arise only because of invisibilities of factor proportions
  • Internal economies of scale can accrue only to the exporting sector
  1. For cost analysis purposes, the production criteria may be –
  • Price of factors of production
  • Quantity of output
  • Either (a) or (b)
  • Neither (a) nor (b)
  1. For cost analysis purposes, the Production Criteria may be –
  • Prices of factors of production
  • Quantity of output
  • Either (a) or (b)
  • Neither (a) nor (b)
  1. In a cost function, the Total cost or cost per unit is a/an –
  • Dependent variable
  • Independent variable
  • Either (a) or (b)
  • Neither (a) nor (b)
  1. In a cost function, the scale of operations is a/an –
  • Dependent variable
  • Independent variable
  • Either (a) or (b)
  • Neither (a) nor (b)
  1. Identify the dependent variable in a cost function from the following.
  • Quantity of output
  • Scale of operations
  • Total cost
  • Price of factors of production
  1. Identify the dependent variable in a cost function from the following.
  • Efficiency
  • Level of capacity utilization
  • Technology
  • Cost per unit
  1. Identity the Independent variable in a cost function from the following.
  • Time period under study
  • Cost per unit
  • Total cost
  • None of the above
  1. The cost function indicates the functional relationship between total cost and –
  • Total unit
  • Fixed cost
  • Total output
  • Variable cost
  1. Which of the following is not a determinant of the firm’s cost function?
  • Production function
  • Price of labour
  • Rent paid for use of building
  • Price of the firm’s output
  1. Which of the following statements regarding short and long run cost functions is not true?
  • A variable input varies according to the quantity of output to be produced
  • In the short run, one or more of the inputs of the production process is fixed
  • In the long run, all the inputs are fixed
  • In the long run there are no restrictions on the resources allocation in the production in the production process.
  1. Which theory proposes that a country could be better off by producing the product I which it has relatively lower labour cost and relatively higher labour productivity?
  • Absolute advantage theory
  • Relative advantage theory
  • Comparative advantage theory
  • Imitation theory
  1. A product can be produced using two input combinations A and B. Combination A takes 2 units of labour and 8 units of capital. Combination B takes 3 units of labour and 5 units of capital, what is the marginal rate of technical substitution of labour for capital?
  • 0
  • 2
  • 3
  • 5
  1. Costs which involve payment made by the entrepreneur to providers of other factors of production are called –
  • Explicit cost
  • Implicit cost
  • Variable cost
  • Fixed cost
  1. Which of the following is an example of an “Explicit Cost”?
  • Wags a proprietor could have made by working as an employee of a large firm
  • Income that could have been earned in alternative uses by the resources owned by the firm
  • Payment of wages by the firm
  • Normal profit earned by a firm
  1. Which of the following does not relate to explicit costs?
  • Out – of – Pocket costs
  • Outlay costs
  • Opportunity costs
  • Accounting costs
  1. ……… are the value of foregone opportunities that do not involve any physical cash payment.
  • Implicit costs
  • Explicit costs
  • Hidden costs
  • Actual costs
  1. Which of the following is an example of an “Implicit cost”?
  • Interest that could have been earned on retained earnings used by the Firm to finance expansion
  • Payment of rent by the firm for the building in which it is housed
  • Interest payment made by the firm for funds borrowed from a bank
  • Payment of wages by the firm
  1. ……….. involve subjective estimation.
  • Implicit costs
  • Outlay costs
  • Out-of-pocket costs
  • Accounting costs
  1. Which of the following is an implicit cost?
  • Land owned by Entrepreneur and used for business purposes, on which no rent is paid.
  • Wages or salary not paid to the Entrepreneur, but could have been earned if his services had been sold somewhere else, i.e. if he were employed in another firm.
  • Normal return on money capital invested by entrepreneur himself in his own business.
  • All of the above
  1. Implicit costs are used for ……. Purposes.
  • Accounting and reporting
  • Costs control
  • Decision making
  • All of the above
  1. If own people (e.g. family members) are employed in the firm, without paying them any reward for their work, labour cost n an –
  • Implicit cost
  • Explicit cost
  • Hidden cost
  • Undisclosed cost
  1. Which of the following is an example of an accounting cost?
  • Interest paid to bank on short-term loan taken
  • Cost incurred on the purchase of raw materials
  • Wages paid to labourers
  • All the above
  1. Reward for Entrepreneurial ability (i.e. normal profit in the business) is included in –
  • Economic cost
  • Accounting cost
  • Explicit cost
  • Undisclosed cost
  1. Which of the following is true regarding economic cost and accounting cost?
  • Economic cost = accounting cost
  • Economic cost > accounting cost
  • Economic cost < accounting cost
  • None of the above
  1. Which of the following is true regarding economic cost and accounting cost?
  • Economic cost less accounting cost = explicit cost
  • Economic cost less accounting cost = implicit cost
  • Accounting cost less economic cost = explicit cost
  • Accounting cost less economic cost =implicit cost
  1. If there are implicit costs of production –
  • Economic profit will be equal to accounting profit
  • Economic profit will be less than accounting profit
  • Economic profits will be zero
  • Economic profit will be more than accounting profit
  1. Which of the following statements is false?
  • Economic costs include the opportunities costs of the resources owned by the firm
  • Accounting costs include only explicit costs
  • Economic profit will always be less than accounting profit if resources owned and used  by the firm have any opportunity costs
  • Accounting profit is equal to total revenue less implicit costs
  1. Opportunity cost refers to ………. In accepting an alternative course of action.
  • Value of sacrifice made
  • Benefit of opportunity foregone
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. If a resource can be put only to a particular use, then, opportunity costs-
  • Are applicable and quantifiable
  • Are applicable but not quantifiable
  • Are not applicable at all
  • None of the above
  1. Opportunity cost are used for …………. Purposes
  • Accounting and reporting
  • Cost control
  • Decision making
  • All of the above
  1. Which of the following is not true with reference to opportunity cost?
  • It is the value of the next best use for an economic good
  • It is the value of a sacrificed alternative
  • It is useful in decision – making
  • It does not take into consideration, the cost of time
  1. A manager needs a stenographer and a Clerk for the accounts department. But, due to financial constraints, he can able to recruit one i.e. either stenographer or clerk. Finally he decides to recruit the stenographer and had to give up the idea of  having an additional clerk in the accounts department. Here, the cost of not hiring an accounts clerk is known as –
  • Accounting cost
  • Cost possibility curve
  • Opportunity cost
  • Substitution effect
  1. …… cost is the total additional cost that a firm has to incur, as a result of implementing a major managerial decision.
  • Sunk
  • Incremental
  • Opportunity
  • Marginal
  1. Incremental cost equals –
  • Additional variable costs only
  • Additional fixed costs only
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Which of the following statement is true?
  • Marginal cost is sub-set incremental cost
  • Incremental cost is sub-set of marginal cost
  • Marginal cost is a sub-set of sunk cost
  • Sunk cost is a sub-set of incremental cost
  1. ….. Cost is not relevant for Decision-making
  • Economic
  • Opportunity
  • Sunk
  • Incremental cost
  1. ………. Are readily indentified and are traceable to a particular product, service, operation or plant.
  • Direct costs
  • Indirect costs
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. ….. are not readily identified nor visibly traceable to specific goods, services, operations, etc.
  • Direct costs
  • Indirect costs
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Accounting process recognized –
  • Direct costs
  • Indirect costs
  • Both (a) and (b)
  • Neither (a) nor (b)

 

Read the following paragraph and answer the following four questions.

Deepika Padukone owns a small pottery factory. She can make 1,000 pieces of pottery per year and sell them for Rs. 100 each. It costs Deepika Rs. 20,000 for the raw material to produce the 1,000 pieces of pottery. She has invested Rs. 100,000 in her factory and equipment: Rs. 50,000 from her savings and Rs. 50,000 borrowed at 10 per cent. (Assume that she could have loaned her money out at 10 per cent, too) Deepika can work at a competing pottery factory for Rs. 40,000 per year.

  1. The accounting cost at Deepika’s pottery factory is:
  • 25000
  • 50000
  • 80000
  • 75000
  1. The economic cost at Deepika’s factory is:
  • 75000
  • 70000
  • 80000
  • 30000
  1. The accounting profit at Deepika’s pottery factory is:
  • 30000
  • 50000
  • 80000
  • 75000
  1. The economic profit at Deepika’s factory is :
  • 75000
  • 35000
  • 80000
  • 30000
  1. Fixed costs are –
  • Period – related
  • Product – related
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Fixed costs are a function of –
  • Output
  • Time
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Some portion of fixed costs need not be incurred when operations are suspended. These are called –
  • Avoidable fixed costs
  • Committed fixed costs
  • Variable costs
  • Semi-variable costs
  1. Some portion of fixed costs cannot be avoided even when operations are suspended. These are called-
  • Discretionary fixed costs
  • Committed fixed costs
  • Variable costs
  • Semi-variable costs
  1. The following are some costs incurred by a clothing manufacturer. State which among them will be considered as fixed cost.
  • Cost of cloth
  • Piece wages paid to workers
  • Depreciation on machines owing to time
  • Cost of electricity for running machines
  1. Variable costs are –
  • Period – related
  • Product –related
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Variable costs are a function of –
  • Output
  • Time
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Variable costs are incurred only when production takes place. So they are in the nature of-
  • Discretionary costs
  • Committed costs
  • Fixed costs
  • Semi-variable costs
  1. All variable costs are avoidable or discretionary in nature. This statement is –
  • True
  • False
  • Partially true
  • Nothing can be said
  1. As output increases, total variable cost-
  • Decreases
  • Increases
  • Remains constant
  • Becomes zero
  1. Total variable costs always vary proportionately with output. This statement is –
  • True
  • False
  • Partially true
  • Nothing can be said
  1. Which of the following is an example of variable cost in the short run?
  • Cost of equipment
  • Interest payment on past borrowings
  • Payment of rent on building
  • Cost of raw materials
  1. Material cost can be defined as –
  • Change in average variable cost divided by change in total output
  • Change in average fixed cost divided by change in total output
  • Change in total fixed cost divided by change in total output
  • Change in total cost due to change in total output by one additional unit.
  1. Marginal cost is independent of fixed cost. This statement is –
  • True
  • False
  • Partially true
  • Nothing can be said
  1. Marginal cost is independent of variable cost. This statement is –
  • Variable costs
  • Output quantity
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Which of the following will not affect marginal costs?
  • Variable costs
  • Output quantity
  • Fixed costs
  • All of the above
  1. Which of the following describes the behaviour of marginal cost curve?
  • Declines first, reaches its minim und then rises
  • Rises first, reaches a maximum and then declines
  • Remains constant throughout all output levels
  • Nothing can be said
  1. Marginal cost curve of a firm will show …. Behaviour when compared to marginal product (MP) curve.
  • Same
  • Reverse
  • Either (a) or (b)
  • Nothing can be said
  1. Marginal costs are applicable in –
  • Short – run
  • Long – run
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Which of the following statements regarding output is false?
  • Output is under the control of the firm
  • Magnitude of the output determines the total cost of production
  • Change in output level determines the rate of change in the total cost of production
  • Output has no role to play in determining the cost function
  1. If output increases in the short-run, total cost will-
  • Increase due to an increase in fixed costs only
  • Increase due to an increase in variable costs only
  • Increase due to an increase in both fixed and variable costs
  • Decrease if the firm is in the region of diminishing returns
  1. Which of the following statements is correct concerning the relationships among the firm’s costs?
  • TC = TFC – TVC
  • TVC = TFC – TC
  • TFC = TC – TVC
  • TC = TVC – TFC
  1. TVC curve will commence from –
  • A certain point on the quantity Axis (X axis)
  • A certain point on the cost Axis (Yaxis)
  • Origin
  • Any of the above
  1. If variable cost per unit (i.e. AVC) is constant at all levels of output, TVC curve will be –
  • Curve with positive slope
  • Straight line with positive slope
  • Rectangular hyperbola
  • None of these
  1. The average fixed cost-
  • Remains the same whatever the level of output
  • Increase as output increases
  • Diminishes as output increases
  • All of the above
  1. Average fixed cost (AFC) of a firm is ……… related to its output.
  • Directly
  • Inversely
  • Proportionately
  • Not
  1. Which of the following is true with respect to average fixed costs?
  • It is a bell shaped curve
  • As the quantity increases it approaches zero
  • If quantity produced tends to zero, Average fixed cost approaches infinity
  • Both (b) and (c) above
  1. AFC curve will be a-
  • Curve with a positive slope
  • Curve with a negative slope
  • Straight line
  • None of the above
  1. AVC decreases as output increases, upto normal capacity output, due to-
  • Law of constant returns
  • Law of diminishing returns
  • Law of increasing returns
  • Law of negative returns
  1. Beyond normal capacity of output, as output increases, AVC will-
  • Remain constant
  • Decrease
  • Increase
  • Nothing can be said
  1. Average variable cost curve has a negative slope-
  • Upto normal capacity output
  • Beyond normal capacity output
  • At all levels of output
  • Nothing can be said
  1. Average variable cost curve has a positive slope-
  • Upto normal capacity output
  • Beyond normal capacity output
  • At all levels of output
  • Nothing can be said
  1. The AVC curve passes through the origin. This statement is –
  • True
  • False
  • Partially true
  • Nothing can be said
  1. Initially average cost declines sharply due to the reason that-
  • AFC declines significantly as output increases
  • AVC declines significantly as output increases
  • AFC increases as output increases
  • AVC increases as output increases
  1. Initially, even when there is an increasing in Average variable Cost (AVC), Average Cost (AC) may still decline due to the reason that –
  • Fall in AFC is less than the rise in AVC
  • Fall n AFC is greater than the rise in AVC
  • Fall in AFC is equal to the rise in AVC
  • None of the above
  1. The AC curve and AVC curve start increasing at the same output level only. This statement is –
  • True
  • False
  • Partially true
  • Nothing can be said
  1. Which of the following statements is correct?
  • When average cost is rising, marginal cost must also be rising
  • When average cost is rising, marginal cost must be falling
  • When average cost is rising, marginal cost is above the average cost
  • When average cost is falling, marginal cost must be rising
  1. Marginal cost is –
  • Always less than the average cost
  • Always more than the average cost
  • Equal to the average cost at its minimum point
  • Never equal to average cost
  1. The MC curve cuts the AVC and ATC curves
  • At the falling part of each
  • At different points
  • At their respective minimas
  • At the rising part of each
  1. When AC falls as a result of an increase in output-
  • MC = AC
  • MC < AC
  • MC > AC
  • Nothing can be said
  1. When AC increase as a result of an increase in output –
  • MC = AC
  • MC < AC
  • MC > AC
  • Nothing can be said
  1. When MC curve intersects AC Curve, it means that –
  • AC is minimum
  • AC = MC
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. A Firm’s Average Total Cost is Rs. 300 at 5 units of output and Rs. 320 at 6 units of output. The marginal cost of producing the 6th unit is –
  • 20
  • 120
  • 320
  • 420
  1. What is the average total cost in producing 20 units, if fixed cost is Rs. 5,000 and variable cost is Rs. 2?
  • 250
  • 260
  • 258
  • 252
  1. For producing 100 units, Total variable cost is Rs. 500 and total fixed cost is Rs. 1000. Compute average cost.
  • 10
  • 15
  • 5
  • 20
  1. The period of time in which the plant capacity can be varied is known as –
  • Short period
  • Market period
  • Long period
  • All of the above
  1. Which is the other name given to the long run average cost curve?
  • Profit curve
  • Planning curve
  • Demand curve
  • Indifference curve
  1. LAC = Least cost combination for an appropriate output level. This statement is –
  • True
  • False
  • Partially true
  • Nothing can be said
  1. In the long-run, when there are infinite SAC curves, the LAC curve will be –
  • Perpendicular to each SAC curve
  • Connecting the lowest points of each SAC curve
  • Smooth curve, so as to be tangent t each of the SAC curves
  • All of the above
  1. LAC curve is tangent to each of the infinite SAC curves. This statement is –
  • True
  • False
  • Partially true
  • Nothing can be said
  1. LAC curve is the connection of all minimum points of SAC curves. This statement is –
  • True
  • False
  • Partially true
  • Nothing can be said
  1. When LAC curve is ……, it will be tangent to the falling portions of the SAC curves.
  • Decreasing
  • Increasing
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. When LAC curve is rising , it will be tangent to the –
  • Falling portions of the SAC curves
  • Rising portions of the SAC curves
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Which of the following statements concerning the long-run average cost curve is false?
  • It represents the least-cost input combination for producing each level of output
  • It is derived from a series of short-run average cost curves
  • The short-run cost curve at the minimum point of the LAC curve represents the least-cost plant size for all levels of output
  • As output increases, the amount of capital employed by the firm increase along the curve
  1. At which of the following points, does the marginal cost curve meet the average variable cost curve?
  • Shut down point
  • Break even point
  • Equilibrium point
  • Profit maximization point
  1. “I am making a loss, but with the rent I have to pay, I can’t afford to shut down at this point of time.” If this Entrepreneur is attempting to maximize profits or minimize losses, his behaviour in the short-run is
  • Rational, if the firm is covering its variable cost.
  • Rational , if the firm is covering its fixed costs.
  • Irrational, since plant closure is necessary to eliminate losses.
  • Irrational, since fixed costs are eliminated if a firm shuts down.
  1. In the long-run, if the firm is unable to cover the average total cost then it-
  • Decreases the selling price
  • Increasing the labour to increase production
  • Decreases the labour to decrease production
  • Moves out of the business
  1. In the long-run, firms will eventually leave the industry if –
  • Price does not at least cover average total cost
  • Price does not equal marginal cost
  • Economies of scale are being reaped
  • Price is greater than long run average cost
  1. In the long run, there is enough time for the firm to cover its losses and earn normal profits. This is because in the long run, all inputs are –
  • Identical
  • Homogenous
  • Variable
  • Fixed

 

 

 

A competitive firm sells as much as of its product as it chooses at a market price of Rs. 100 per unit. Its fixed costs are Rs. 300 and its variable costs for different levels of production are shown in the following table. Use the following table and answer the next 14 questions.

QTY TVC TFC TC AVC AFC AC MC
0 0
5 250
10 470
15 700
20 980
25 1350
30 1850
35 2520
40 3400
45 4530
50 5950

 

  1. When production is 10 units, AVC will be –
  • 50.00
  • 47.00
  • 46.67
  • 49.00
  1. when production is 10 units, AC will be –
  • 50.00
  • 97.00
  • 77.00
  • 110.00
  1. When production is 20 units, AVC will be –
  • 50.00
  • 47.00
  • 46.67
  • 49.00
  1. When production is 20 units, AC will be –
  • 50.00
  • 64.00
  • 77.00
  • 88.00
  1. When production is 30 units, AVC will be –
  • 56.67
  • 61.67
  • 46.67
  • 66.67
  1. When production is 30 units, AC will be-
  • 66.67
  • 71.67
  • 56.67
  • 76.67
  1. When production is 40 units, AVC will be –
  • 85.00
  • 82.50
  • 92.50
  • 95.00
  1. When production is 40 units, AC will be-
  • 85.00
  • 82.50
  • 92.50
  • 95.00
  1. When production is 50 units, AVC will be –
  • 100.00
  • 110.00
  • 119.00
  • 125.00
  1. When production is 50 units, AC will be –
  • 100.00
  • 110.00
  • 119.00
  • 125.00
  1. AC is minimum when output is –
  • 10 units
  • 20 units
  • 30 units
  • 40 units
  1. MC curve will cut AC curve when output is –
  • 10 units
  • 20 units
  • 30 units
  • 40 units
  1. To maximize profit, the firm should produce –
  • 15 units
  • 30 units
  • 35 units
  • 50 units
  1. If the market price drops from Rs. 100 to Rs. 56, the firm’s short run response should be –
  • Shut down
  • Produce 5 units
  • Produce 20 units
  • Continue to produce the same number of units as before the drop in price.

Use table to answer the following 4 questions.

Malhotra’s burgers is a small restaurant and a price taker. The table below provides the data of Malhotra’s output and costs in Rupees.

Qty TC FC AVC AC MC
0 100
10 210
20 300
30 400
40 540
50 790
60 1060

 

  1. If burgers sell for Rs. 14 each, what is Malhotra’s profit maximizing level of output:
  • 10 burgers
  • 40 burgers
  • 50 burgers
  • 60 burgers
  1. What is the total variable cost when 50 burgers are produced ?
  • 690
  • 960
  • 110
  • 440
  1. What is average fixed cost when 20 burgers are produced?
  • 5
  • 3.33
  • 10
  • 2.5
  1. Between 10 to 20 burgers, what is the marginal cost (per burger)?
  • 11
  • 13
  • 14
  • 9

 

 

 

 

 

 

 

 

A competitive Firm sells its product at Market price Rs. 51 per unit. The fixed cost is Rs. 300 and variable cost for different level of production are shown in the following table. Answer the following questions –

Qty Variable cost Fixed cost Total cost AVC ATC MC
0 0
10 470
20 980
30 1850
40 3400
50 5950

 

  1. When production is 30 units, the average Variable cost is –
  • 6
  • 6
  • 6
  • 6
  1. When production is 30 units, the Average Variable cost is –
  • 265
  • 255
  • 245
  • 275
  1. To maximize profit, the Firm should produce-
  • 30 units
  • 10 units
  • 20 units
  • 40 units
  1. If the Market Price drops from Rs. 51 to Rs. 47, the Firm should-
  • Close down
  • Produce 10 units
  • Produce 30 units
  • Produce 20 units

 

 

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