Cost of Production: Concepts and Cost Curves: 17 MCQs

All 17 multiple-choice questions from this kit, free and with no sign-up.

Full kit · everything Flashcards · 20 Quick Revision · 15

Warm-up · 6 questions

Q1. A farmer uses his own land and his own labour to grow wheat. In economics, these are best described as:

Beginner

A Sunk costs, because no payment is made

B Fixed costs, because land never changes

C Explicit costs, because they are real resources

D Implicit costs, because they are opportunity costs of self-owned resources

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Q2. Which statement correctly distinguishes cost from expense?

Beginner

A An expense is always larger than a cost

B A cost is incurred when an input is used; an expense is a payment made

C Cost and expense are identical in economics

D Only expenses appear in economic profit calculations

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Q3. The short run in production theory is defined as the period in which:

Beginner

A At least one factor of production is fixed

B Exactly one year has passed

C The firm earns only normal profit

D All factors of production can be varied

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Q4. At zero output, which of the following is true?

Beginner

A TC = TFC and TVC = 0

B TC = 0 and TFC = 0

C TFC = 0 and TVC > 0

D TC = TVC and TFC = 0

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Q5. Which cost curve is a horizontal straight line against output?

Beginner

A Total Fixed Cost

B Marginal Cost

C Total Variable Cost

D Average Variable Cost

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Q6. Marginal Cost equals the change in Total Cost (or Total Variable Cost) divided by the change in output: $MC = \Delta TC/\Delta Q = \Delta TVC/\Delta Q$, because TFC is constant.

Beginner

A True

B False

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Building up · 6 questions

Q7. A firm earns revenue of ₹5,00,000. Its explicit costs are ₹3,50,000 and implicit costs are ₹1,50,000. What is its economic profit?

Intermediate

A ₹3,50,000

B ₹1,00,000

C ₹1,50,000

D ₹0

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Q8. A roadside tea stall can adjust its entire setup in a month, while a steel plant needs several years. What does this illustrate?

Intermediate

A Calendar time alone determines the short run

B The steel plant never reaches the long run

C The short run and long run differ by firm and industry, not by clock time

D The tea stall has no fixed costs

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Q9. Why does the AFC curve fall continuously as output rises?

Intermediate

A Because marginal cost is falling

B Because fixed cost itself falls with output

C Because variable cost rises faster than output

D Because a constant TFC is spread over a larger quantity

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Q10. The S-shape of the TVC curve — first rising at a decreasing rate, then at an increasing rate — is caused by:

Intermediate

A The rectangular hyperbola shape of AFC

B The law of variable proportions

C A constant marginal cost

D A falling total fixed cost

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Q11. A firm's TFC is ₹100. At output levels 0 to 3, TVC is ₹0, ₹50, ₹90, ₹120. What is TC at output 2?

Intermediate

A ₹90

B ₹190

C ₹140

D ₹100

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Q12. If marginal cost is less than average cost, then average cost must be:

Intermediate

A Falling

B At its minimum

C Rising

D Constant

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Topper level · 5 questions

Q13. Using TFC = ₹100 and TVC = ₹0, ₹50, ₹90, ₹120 at Q = 0, 1, 2, 3, what is MC at Q = 3?

Advanced

A ₹10

B ₹120

C ₹40

D ₹30

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Q14. Assertion (A): The MC curve cuts the AC curve at the minimum point of AC. Reason (R): When MC is below AC, AC falls; when MC is above AC, AC rises; so they must meet where AC stops falling.

Advanced

A A is true but R is false

B A is false but R is true

C Both A and R are true, and R correctly explains A

D Both A and R are true, but R does not explain A

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Q15. A firm's price falls below its minimum AVC. What should it do in the short run?

Advanced

A Continue producing at full capacity

B Raise its price above AC

C Exit the industry permanently

D Shut down, because it cannot even cover variable costs

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Q16. Which of the following is a common mistake students make about cost curves?

Advanced

A Treating MC as ΔTC/ΔQ

B Treating AFC as U-shaped when it only falls

C Treating TFC as constant at all output levels

D Treating TVC as zero at zero output

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Q17. Given the following data for a firm: Total Fixed Cost (TFC) is ₹100, and Total Variable Cost (TVC) at outputs 0 to 5 are ₹0, ₹50, ₹90, ₹120, ₹160, ₹220 respectively. Calculate the Average Cost (AC) at output level 4. What does this value indicate about the firm's cost structure at this output level?

Advanced

A ₹40, indicating that the firm is not utilizing its fixed costs efficiently.

B ₹65, indicating that the firm is experiencing economies of scale.

C ₹50, indicating that the firm should reduce output to minimize costs.

D ₹75, indicating that the firm is operating at a loss.

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