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CA Foundation Economics – Theory Of Production And Cost  Multiple Choice Questions

Question 1. Opportunity cost is

1. Direct cost
2. Total cost
3. Cost of foregone oppurtunity
4. Accounting cost

Answer: 4. Cost of foregone opportunity

Opportunity cost is the cost of the next best alternative forgone. It’s the cost of foregone opportunity.

Question 2. As output increases, the average fixed cost

1. Remains constant
2. Starts falling
3. Start rising
4. None

Answer: 2. Starts falling

The average fixed cost is expressed as 

AFC = Fixed Cost/ Number of units produced

Fixed cost always remains fixed. It does not increase with an increase in output. So the average fixed cost falls as more and more units are produced as the fixed cost remains the same.

Question 3. Average fixed cost can be obtained through 

1. AFC = TFC/TS
2. AFC = EC/TU
3. AFC = TC/ PC
4. AFC = TFC/TU

Answer: 4. AFC = TFC/TU

Average Fixed Cost = Total Fixed Cost / Number of units produced

In the given Question

AFC  = Average fixed cost

TFC =  Total Fixed cost

TU =  Total no. of units produced.

Question 4. AFC curve Is

1. Convex & downward sloping
2. Conenvo & downward sloping
3. Convox & upward sloping
4. Conenvo & upward rising

Answer: 1. Convex & downward sloping

Average fixed cost always decreases with an Incroaso in output so the AFC curve Is convex and downward sloping.

Question 5. A firm’s average flood cost Is 20 at 6 units of output what will It be at 4 units of output?

1. 60
2. 30
3. 40
4. 20

Answer:  2. 60

A firm’s average flood cost Is 20 at 6 units of output

TFC/ Number of units

20 = TFC/6

So Total fixed cost = 20 × 6

= ₹ 120.

So Average Fixed Cost of 4 units of output

AFC = TFC / Number of units

AFC = \(\frac{120}{4}\).

= 30

Question 6. U-shaped average cost curve is based on:

1. Law of Increasing Cost
2. Law of decreasing cost
3. Law of constant rot urns to scale
4. Law of variable proportions

Answer: 4. Law of variable proportions

Avorago cost curve is U-shaped due to the law of variable proportion. In the the first stage, T.P increases so AC decreases, then T.P becomes constant and finally, T.P decreases and AC increases. Horico, it gives a U shape to the average cost curve

Question 7. When the shape of the average cost curve is upward, the marginal cost

1. Must be decreasing
2. Must be constant
3. Must be rising
4. Any of these

Answer: 3. Must be rising

Average cost and marginal cost are so related that when the average cost falls, MC falls at a faster rate, when AC rises, MC cuts AC at its minimum.

So when the AC curve is upward MC must be rising.

Question 8. If the total cost for 10 units is ₹ 600 and ₹ 640 for the 11th unit. The marginal cost of the 11th unit is 

1. ₹20
2. ₹30
3. ₹40
4. ₹50

Answer:  3.

If the total cost for 10 units is ₹ 600 and ₹ 640 for the 11th unit.

Marginal Cost = TC – TC

= TC₁₁– TC_11-1

= 640 -600

= ₹ 40

Question 9. Economic cost excludes which of the following 

1. Accounting cost + explicit cost
2. Accounting cost + implicit cost
3. Explicit cost + Implicit cost
4. Accounting cost + opportunity cost

Answer: 1.  Accounting cost + explicit cost

Economics cost takes into account accounting (explicit) cost and in addition to this includes the amount of money the entrepreneur could have earned if he had invested his money and sold his se-does arc ether factors in the next best alternative use.

Economic Cost = Implicit cost e Explicit cost

OR = Accounting cost + Implicit cost

OR = Accounting cost e opportunity cost

Question 10. Which of the following cost curves is never ‘U’ shaped?

1. Average total cost curve
2. Marginal cost curve
3. Total cost curve
4. Total Fixed cost curve

Answer: 4. Total Fixed cost curve

Total fixed cost refers to the cost which remains the same even if the total increases. Rxed cost has no effect with an increase and decrease h production. Examples of such costs are rent factory charges, etc. Since fixed cost always remains constant so the fixed cost curve is not  U shaped but it’s a straight

Question 11. Suppose, the total cost of production of commodity X is ₹ 1,25,000. Out of this cost, the implicit cost is ₹ 35,000 and the normal profit is ₹ 25,000. What will be the explicit cost of commodity X?

1. 90,000
2. 65,000
3. 60,000
4. 1,00,000

Answer: 2.  65,000

Suppose, the total cost of production of commodity X is ₹ 1,25,000. Out of this cost, the implicit cost is ₹ 35,000 and the normal profit is ₹ 25,000.

Total cost = ₹ 1,25,000

Implicit cost =₹ 35,000

Normal profit = ₹ 25,000 –

Explicit cost =?

Total cost = Explicit Cost + Implicit Cost + Normal Profit

1,25,000 = Explicit Cost + 35,000 + 25,000

Explicit Cost = ₹ 65,000

Question 12. What is the total cost of production of 20 units, if the fixed cost is X 5,000 and the variable cost is ₹ 2/-?

1. 5,400
2. 5,040
3. 4,960
4. 5,020

Answer: 2. 5,040

Total Cost = Fixed Cost + Variable Cost t

₹ 5,000 ÷ 20 × 2.

= ₹ 5040

Question 13. External economies accrue due to _________________

1. Increasing returns to scale
2. Increasing returns to factor
3. Law of variable proportion
4. Low cost

Answer: 1. Increasing returns to scale

External economies accrue to firms as a result of the expansion of the output of the whole industry. Increasing returns to scale occur due to external economies.

Question 14. At which point does the marginal cost curve intersect the average variable cost curve and short-run average total cost curve?

1. At equilibrium points
2. At their lowest points
3. At their optimum points
4. They don’t intersect at all

Answer: 2. At their lowest points

The marginal cost curve and average cost curve tend that when the AC curve falls, the MC curve falls faster when the AC curve rises MC curve rises at a faster rate and the MC curve cut the AC curve at its minimum .(lowest point).

Question 15. Implicit cost may be defined as the

1. Costs which do not change over some time
2. Costs which the firm incurs but doesn’t disclose
3. Payment to the non-owners of the firm for the resources
4. Money payment which the self-employed resources could have earned in their best alternative employment

Answer: 4. Implicit cost is the cost of self-employed resources.

It is the cost of inputs owned by the firms and used by the firm in its production process.

Implicit costs include:

• Return on money invested by the entrepreneur in .its own business
• Rent of self-owned building of the entrepreneur.

Question 16. A firm’s average fixed cost is ^ 40 at 12 units. What will be the average fixed cost at 8 units:

1. ₹ 60
2. ₹ 70
3. ₹ 90
4. ₹ 80

Answer: 1. ₹ 60

AFC = TFC/Number of units produced

40 = TFC/12

TFC = 40 × 12

= ₹ 480

Question 17. Returns to scale will said to be in operation when the quantity of

1. All inputs are changed
2. All inputs are changed in already established proportion
3. all inputs are not changed
4. One input is changed while the quantity of all other inputs remains the same

Answer:  2. All inputs are changed in already established proportion

Returns to scale come into operation when all inputs whether fixed or variable are changed in the same proportion i.e. the scale of production changes.

Question 18. Which of the following curves never touches any axis but is downward?

1. Marginal cost curve
2. Total cost curve
3. Average fixed cost curve
4. Average variable cost curve

Answer: 3. Average fixed cost curve

The average fixed cost curve never touches any axes but it slopes downward. Average fixed cost can never be zero even if there is no production so it can never touch any axes. AFC falls when output increases as fixed cost is always fixed. Hence, the curve is downward sloping.

Question 19. Which of the following is known as the Envelope curve?

1. MC curve
2. AFC curve
3. LAC curve
4. TFC curve

Answer: 3. LAC curve

The long-run average cost curve is called the enveloping curve os ft envelops all short-run average cost curves (SAC curves are tangent to the LAC curve)

Question 20. A firm producing 7 units of output has an average total cost of ₹ 150 and has to pay ₹ 350 to its fixed factors of production How much of the average lotal cost is made up of variable cost?

1. 200
2. 50
3. 300
4. 100

Answer: 4. 100

A firm producing 7 units of output has an average total cost of ₹ 150 and has to pay ₹ 350 to its fixed factors of production

ATC = TC / Number of units

150= T.C/7

Total cost of 7 units = 150 × 7 = 1050

Fixed Cost = 7 350

Total cost = Fixed Cost + Variable Cost

1050 = 350 + V.C.

So variable cost of 7 units = 1050 – 350 = ₹ 700

Average variable cost of 7 units = \(\frac{700}{7}\) = ₹ 100

Question 21. A firm’s average fixed cost is ₹ 20 at 6 units of output. What will it be at 3 units of output?

1. ₹ 60
2. ₹ 30
3. ₹ 40
4. ₹ 20

Answer: 3. ₹ 40

A firm’s average fixed cost is ₹ 20 at 6 units of output.

Average fixed cost = TFC/ Number of units

20 = TFC/6

T.F.C. = 20 × 6 = ₹ 120.

Average fixed cost of 3 units of output = TFC/ Total units

⇒ \(\frac{120}{2}\)

= ₹ 40.

Question  22.  Calculate the total cost of 4 units

1. 140
2. 120
3. 50
4. 40

Answer: 1. 140

Let the total cost of producing 4 units be ₹ x

Marginal Cost = Change in Total/Cost Change in Total Quantity

= \(\frac{x-80}{4-2}\)

= 30

= \(\frac{x-80}{2}\)

= x- 80 = 60

= x = 60 + 80

=₹ 140

Question 23.

Find the average fixed cost of 3 units 

1. 10
2. 0
3. 65
4. 60

Answer: 1. 10

= Average fixed cost /Quantity

= \(\frac{30}{3}\)

= 10

Question 24. Long run does not have

1. Average Cost
2. Total Cost
3. Fixed Cost
4. Variable Cost

Answer: 3. Fixed Cost

The long run is a period during which the firm can vary all its inputs, unlike the short run in which some inputs are fixed and others are variable. In other words, in the short run, the firm is tied with a given plant, in the long run, the firm moves from one plant to another, so the long run does not have any fixed cost.

Question 25.  Which of the following cun/e is not U-shaped?

1. AFC
2. A VC
3. MC
4. TC.

Answer: 1. AFC

Fixed cost remains fixed irrespective of several units produced and therefore average fixed cost keeps on decreasing as more and more units are produced. Due to this, the average fixed cost curve always slopes downward throughout its length and it is not of U shape.

Question 26. From the following details, find out the average variable cost of 10 units

1. ₹ 40
2. ₹ 20
3. ₹ 200
4. ₹ 400

Answer: 2. 20

Variable cost per unit = Difference in cost/ Difference in units produced

⇒ \(\frac{400-200}{10}\)₹

= ₹ 20 per unit

Variable cost of 10 units = ₹ 20× 10

= ₹ 200

Therefore, average variable cost = \(\frac{200}{10}\)₹

= ₹  20

Question 27. The total cost incurred for 10 units is T 400 and 20 units is ^ 800. Find the marginal cost.

1. ₹ 400
2. ₹ 40
3. ₹ 200
4. ₹ 20

Answer: 2. ₹ 40

The total cost incurred for 10 units is T 400 and 20 units is ^ 800.

Variable/Marginal cost may be expressed as:

Difference in cost/difference in units

In the given case

Marginal Cost = \(\frac{800-400}{20-10}\)₹

= \(\frac{400}{10}\)₹

= ₹ 40 per unit.

Question 28. Which one of the following is correct?

1. AFC = AVC + ATC
2. ATC = AFC-AVC
3. AVC = AFC + ATC
4. AFC = ATC – AVC.

Answer: 4. AFC = ATC – AVC.

The total cost of a business is the sum of the total variable cost and total fixed cost. Symbolically, TC = TFC + TVC. Similarly, average total cost is a  sum of average variable cost and average fixed cost i.e. ATC = AFC + AVC. This formula can also be expressed as:

AFC = ATC – AVC

Question 29. Calculate AFC of 3 units from the following data:

1. ₹ 30
2. ₹ 15
3. ₹ 10
4. ₹ 5

Answer: 3. ₹ 10

Fixed cost is the cost incurred even when no production is done, whereas the cost incurred on the production of units is called variable cost. Total cost is the summation of fixed cost and variable cost.

In the given case, at 0 units of output, the total cost is ₹ 30. This total cost comprises of only fixed costs and not variable costs as no units are produced.

Fixed cost always remains the same, irrespective of the number of units.

Therefore, the average fixed cost of 3 units will be:

AFC = TFC/ Number of units

AFC of 3 units = \(\frac{30}{3}\)₹

= ₹ 10

Question 30. Find AFC of 3 units 

1. 5
2. 10
3. 15
4. 25

Answer: 1. 5

Fixed cost remains the same, irrespective of the level of output.

In the given case, fixed cost = ₹ 15

Average fixed cost of.3 units =  Total fixed cost / Number of units

= ₹ \(\frac{15}{3}\)

AFC of 3 units = ₹ 5

Question 31. What will be the TVC if we produce 2 units?

1. 15
2. 05
3. 17
4. 30

Answer: 4. 30

At zero units of output TC = FC (since TC= FC+VC) So FC = 20,

At 2 units of output: TC = 50 and FC = 20 so variable cost = Total cost – Fixed cost

⇒ 50 – 20 = 30

Question 32. The total cost of production of 10 units is ^ 200. When production is increased to 20 units its total cost becomes ? 600. What will be its marginal cost?

1. 400
2. 40
3. 4
4. 30

Answer: 2.

Marginal Cost is expressed as:

The total cost of production of 10 units is ^ 200. When production is increased to 20 units its total cost becomes ₹ 600

Difference in total cost/ Difference in total units

= \(\frac{600-200}{20-10}\)₹

= \(\frac{400}{10}\)₹

= ₹ 40 per unit.

Question 33.

What will be the AFC at 4 units of output?

1. 2
2. 3
3. 4
4. 5

Answer:  4. 5

Average fixed cost is expressed as:

= Total fixed cost / Quantity = \(\frac{20₹ }{4 units}\)

= ₹  5 units per unit

Question 34. Payments made to outsiders for their goods and services are called

1. Opportunity cost
2. Real cost
3. Explicit cost
4. Implicit cost

Answer: 3. Explicit cost

Explicit cost (or Accounting cost) takes care of all the payments and charges made by the entrepreneur to the suppliers of various productive factors example, wages to workers employed, prices for the raw materials, fuel and power used, rent for the hired building, interest on money borrowed for doing business etc. These costs are included in the cost of production.

Question 35. Direct Cost is also known as 

1. Indirect Cost
2. Traceable Cost
3. Opportunity Cost
4. AccountingCost.

Answer: 2. Traceable Cost

Indirect cost is also known as non-traceable cost. Traceable cost is also known as direct cost. Accounting cost is also known as explicit cost.

Question 36. A firm’s AFC is ₹ 200 at 10 units of output what will be it at 20 units of output?

1. 500
2. 100
3. 150
4. 200

Answer: 2. 100

AFC = TFC/ Output

Now, TFC for 10 units of output = 200 × 10 = 2000

AFC for 20 units = \(\frac{2000}{20}\)

= 100

Question 37. Long run price is also called by the name of ________________

1. Market price
2. Normal price
3. Administered price
4. Wholesale price.

Answer: 2. Normal price

Long Run price is also known as Normal price

Question 38. What will be the AFC of 2 units according to the table given below

1. 105
2. 135
3. 235
4. 290

Answer:  4. 290

TC at 0 Units of output = ₹ 580

TFC = ₹ 580.

AFC = TFC/Output

= \(\frac{580}{2}\)

= 290

Question 39. Fixed cost is known as _______________

1. Prime
2. Supplementary
3. Overhead
4. Direct

Answer: 3. Overhead

Fixed cost is also known as overhead cost since it continues to exist even if the operations are suspended. For example rent of factory.

Question 40. Average Revenue Curve is also known as.

1. Profit curve
2. Demand curve
3. Supply curve
4. Average cost curve

Answer: 2. Demand curve

The average Revenue Curve is also known as the Demand Curve.

Question 41. The supply curve remains unchanged, an increase in demand will lead to.

1. A fall in price
2. A rise in price
3. No change in price.
4. An increase in supply.

Answer: 2. A rise in price

An increase in demand without a change in supply to leads in price and quantity

Question 42. Find out AFC of 3 units:

1. 100
2. 200
3. 300
4. 400

Answer:  1. 100

Average fixed cost (AFC) = total fixed cost/ Number of units

In The given case,

Total fixed cost = ₹ 300

AFC for 3 units = \(\frac{300}{3}\)₹

= ₹ 100

Hence, AFC for 3 units is ₹ 100

Question 43.

Calculate AFC at 2nd unit of output

1. ₹ 235
2. ₹ 290
3. ₹ 310
4. ₹ 920

Answer: 2. ₹ 290

Average fixed cost (AFC) = total fixed cost/ Number of units

In The given case,

Total fixed cost = ₹  580

AFC for 3 units = \(\frac{580}{2}\)₹

= ₹ 290

Question 44. In the long run, all factors are 

1. Fixed
2. Variable
3. All factors remain unchanged
4. None.

Answer: 2. Variable

The long run is the period during which the firm can vary all of its inputs. In other words, in the long run, all factors are variable and no factor is fixed.

Question 45. What will be the AFC of 3 units of Output as per the table given below?

1. 100
2. 1,000
3. 200
4. 400

Answer: 1. 100

Total Fixed Cost =₹  300

Total output = 3 units

∴ AFC = TFC/ Q

= \(\frac{300}{3}\)

= ₹ 100

Question 46. What will be the marginal cost of 67 units of production according to the table given below

1. 10
2. 20
3. 30
4. 50

Answer: 3. 30

Change in total cost = 1400 – 500 = ₹ 900

Change in units of production = 67 – 37 = 30 units

MC per unit = Change in Total Cost/Change in units

= \(\frac{900}{30}\) ₹

= ₹ 30

Question 47. Which of the following is known as the Envelope Curve?

1. Average variable cost curve
2. Average total cost curve
3. Long run average cost curve.
4. Short-run average cost curve

Answer: 3. Long run average cost curve.

If a firm has a choice that a plant can be varied by infinitely small gradations so that there are an infinite number of plants corresponding. to which there are numerous average cost curves. In this case, the long-run average cost Curve will be a smooth curve enveloping all these short-run average cost curves. Thus, the long-run average cost curve is also known as the envelope curve.

Question 48. The average fixed cost for producing an output of 6 units of.a product a firm is ₹ 30. The same cost for producing an output of 4 units will be ₹  ____________________

1. 50
2. 45
3. 25
4. 20

Answer: 2. 45

The average fixed cost for producing an output of 6 units of.a product a firm is ₹ 30

Total Fixed Cost  (TFC)= 30 × 6 = ₹ 180

AFC for 4 units of output = TFC/Quantity

\(\frac{180}{Q}\) =  ₹ 45

Question 49 . 

What will be the AFC of 4 units of Output

1. 2
2. 3
3. 4
4. 5

Answer:  4. 5

Total Fixed Cost (TFC) = ₹ 20

Total units of output (Q) = 4 units

AFC = TFC/Q

= \(\frac{20}{4}\)

= ₹ 5

Question 50.  Suppose the total cost of production of commodity ‘X’ is? 1,25,000 Out of other cost implicit is? 35,000 and the normal profit is T 25,000 what will be the explicit cost of commodity ‘X’?

1. ₹ 60,000
2. ₹  65,000
3. ₹ 90,000
4. ₹ 80,000

Answer: 2. ₹ 65,000

Suppose the total cost of production of commodity ‘X’ is ₹1,25,000 Out of other cost implicit is ₹35,000 and the normal profit is T 25,000

Explicit Cost = Total Cost – Implicit Cost – Normal Profit

= 1, 25 000 – 35, 000- 25,000

=₹  65, 000

Question 51. What will be the total fixed cost for the production of three units as per the details given below

1. 620
2. 640
3. 1115
4. 2650

Answer:  1. 620

Fixed cost is the cost which remains fixed even if the total output is zero. Also,

Total Cost = Fixed Cost + Variable Cost

At zero units of output, the variable cost will be zero.

620 = Fixed Cost + 0

So total fixed cost = ₹ 620.

Fixed cost remains constant irrespective of units of output.

Hence at 3 units of output also total fixed cost will be ₹620.

Question 52. Cost in terms of pain, discomfort, and disability involved in supplying the various factors of production by their owners are termed as 

1. Social cost
2. Explicit cost
3. Real cost
4. Implicit cost

Answer: 3. Real cost

Real cost refers to all those payments which are made to the factors of production to compensate for the efforts, pains, exertions or sacrifices suffered by them.

Real cost = efforts, pains, exertions and sacrifices of labour and capital + wait and abstinence of entrepreneur.

Real cost is the cost in terms of pain and sacrifice made to produce goods and services. It includes the cost of producing goods and services as well as the cost of all resources used and the cost of not employing those resources in alternative uses.

Question 53. Which of the following is known as the Envelope Curve?

1. Average variable cost curve
2. Average total cost curve
3. The long-run average cost curve
4. Short run average cost curve.

Answer: 3. Long run average cost curve

Long Run Average Cost Curve (LAC) is a U-shaped curve. When the LAC curve is declining it is tangent to the failing portions of the short-run cost curves and when the LAC is rising it is tangent to the rising portions of the short-run cost curves. In simple words, the long-run average cost curve envelops all the short run cost curves and – hence is known as the envelope curve.

Question 54. The cost of resources owned and employed by the entrepreneur himself in his business is termed as _________________  cost.

1. Explicit
2. Implicit
3. Fixed
4. Variable.

Answer: 2. Implicit

Implicit costs are the costs for which payment in money terms is not made. These are the cost of factors owned by the entrepreneur himself and employed in his own business. For example, An entrepreneur uses his land for production. If he had rented that land he would have earned rent.

So the cost of using his land in the business is known as the implicit cost.

Question 55. A firm will close down in the short period if its average revenue is less than its:

1. Average cost
2. Average variable cost
3. Marginal cost
4. Average fixed cost ’

Answer: 2. Average variable cost

A firm should close down in the short run if it is not able to recover its variable cost. A firm shall continue to run if it is not able to meet its fixed cost because it may recover it in future. But variable cost. is incurred to meet the payment of raw material, labour etc. which should be met otherwise the firm should close down.

Question 56. A firm’s total cost is ? 200 at 5 units of output and X 220 at 6 units of output. The marginal cost of producing 6th unit of output will be ________________

1. 20
2. 120
3. 220
4. 320.

Answer: 1. 20

Marginal Costn = TC_n-TC_n-1

= TC₆-TC_6-1

= TC₆-TC₅

= 220 – 200

= ₹ 20 per unit

Question 57. Consider the following data Units of

The Average Variable Cost (AVC) for an output of 4 units will be 

1. ₹ 20
2. ₹ 30
3. ₹ 25
4. ₹  26

Answer: 1.₹  20

VCP.U. Difference in Total Cost/ Difference in units produced

= \(\frac{105 -25}{4-0}\)

= \(\frac{80}{4}\)

= ₹ 20 p.u

VC of 4 units =  20 × 4

= ₹  80

AVC = \(\frac{80}{4}\)

= ₹  20

Question 58. The change in total cost due to one unit change in the output is called  _______________ cost.

1. Marginal
2. Average
3. Average variable
4. Average fixed

Answer: 1. Marginal

Marginal cost is the addition made to the total cost by production of an additional unit of output.

Question 59. When the AC curve is rising, the MC curve must be ______________  to it.

1. Equal
2. Above
3. Below
4. Parallel.

Answer: 2. Above

When the AC curve rises as a result of an increase in output, MC is more than AC i.e. MC curve is above the AC curve.

Question 60. The Average fixed cost for producing an output of 6 units of a product by a firm is ₹ 30. The same cost for producing an output of 4 units will be ₹ _______________ 

1. 50
2. 45
3. 25
4. 20

Answer: 2. 45

AfC = TfC/ Number of units

30 = TFC/6

∴  TFC = 30 × 6 =  ₹ 180

So, AVC for 4 units of output = \(\frac{180}{4}\)

= ₹  45

Question 61. Which of the following cost curves will slope downward and does not touch the x-axis?

1. Average cost curve
2. Marginal cost curve
3. Average variable cost curve
4. Average fixed cost curve.

Answer: 4. Average fixed cost curve.

The total fixed cost is a constant amount, i.e. it is fixed in nature. The average fixed cost will steadily fall as output increases. Therefore, if we draw the average fixed cost curve it will slope downwards throughout its length but will not touch to x-axis as AFC cannot be zero.

Question 62.  Suppose the total cost production of a commodity ‘x’ is ₹ 1,25,000 out of which Implicit cost is ₹ 35,000 and normal profit is ₹ 25,000. What would be the explicit cost of commodity x?

1. 90,000
2. 65,000
3. 1,00,000
4. 60,000

Answer: 2. 65,000

Total cost = ₹ 1,25,000

Implicit cost = ₹ 35,000

Normal profit = ₹  2,50,000

Explicit cost =?

Total cost = Explicit cost + Implicit cost + Normal profit

1,25,000 = Explicit cost + 35,000 + 25,000 = 1,25,000 -435,000 – 25,000

= 65, 000

Question 63.  In which of the following cases opportunity cost concept apply?

1. Resources have alternative uses
2. Resources have limited uses
3. Resources have no use
4. None of the above.

Answer: 1. Resources have alternative uses

Opportunity cost refers to the cost of opportunity forgone involving a comparison between the alternative chosen and the alternative forgone. It  relates to the sacrificed alternatives

Thus, the opportunity cost concept applies where the resources have alternative uses.

Question 64. Direct costs are also known as _____________________

1. Traceable costs
2. Indirect costs
3. Opportunity costs
4. Real costs.

Answer: 1. Traceable costs

Direct costs are costs that are readily identified and are traceable to a particular product operation or plant. It is also known as Traceable Cost.

Question 65.  Which statement below is correct in reference in Average Fixed Cost

1. Never becomes zero
2. The curve never touches the X-axis
3. The curve never touches the y-axis
4. All of the above

Answer: 4. All of the above

Average fixed cost never touches any axis but it slopes downward, Average fixed cost can never be zero even if there is no production so it can never touch any axis. AFC falls when output increases as ffxed cost is always fixed.

Question 66. Marginal cost changes due to changes in  ________________ cost.

1. Total
2. Fixed
3. Average
4. Variable

Answer: 4. Variable

Marginal copy is the addition made to the total cost by the production of an additional unit of output. It is independent of fixed cost, It is only the variable costs which change with a change in the level of output in the short run.

Question 67. A firm produces 10 units of a commodity at an average total cost of ? 200 and with a fixed cost of? 500. Find out the component of average  variable cost in the total cost

1.  ₹  300
2.  ₹  200
3. ₹ 150
4.  ₹  100

Answer: 3. ₹  150

A firm produces 10 units of a commodity at an average total cost of ? 200 and with a fixed cost of? 500.

The average total cost of 1 unit = ₹ 200

Total cost of 10 units = 200 × 10 = ₹  2,000

Total fixed cost = ₹ 500

Total variable cost = total cost – total fixed cost = 2,000 – 500 = ₹ 1,500

Variable cost of 1 unit = 1500/10 = ₹  150

Hence, a component of average variable cost in the total cost is = ₹ 150.

Question 68. The average total cost to a firm is ₹ 600 when it produces 10 units of output and ₹ 640 when the output is 11 units. The MC of the 11th unit is 

1.  ₹  40
2.  ₹  540
3.  ₹  840
4.  ₹  1,040

Answer: 4. 1,040

The average total cost to a firm is ₹ 600 when it produces 10 units of output and ₹ 640 when the output is 11 units.

The average total cost of 10 units of output  ₹  600 Average total cost of 11 units of output = is ₹ 640

The marginal cost of 111h unit=Total cost of 11 units -Total cost of 10 units

= (640 × 11)  – (600 × 10) ₹

= ₹  1,040

Question 69. The average cost of producing 50 units of any commodity is  ₹  250 and the fixed cost is ₹ 1,000. What will be the average fixed cost of producing 100 units of the commodity?

1.  ₹  10
2.  ₹  30
3.  ₹  20
4.  ₹   05

Answer: 1. ₹  10

The average cost of producing 50 units of any commodity is  ₹  250 and the fixed cost is ₹ 1,000.

The fixed cost of producing 50 units is 1,000 and the fixed cost of producing 100 units will also be the same i.e.  ₹  1,000.

The Average Fixed Cost of 100 units Fixed Cost  1,000

AFC= Fixed cost/ Quantity

=  \(\frac{1000}{100}\) ₹

= ₹  10

Question 70. A company produces 10 units of output and incurs ₹ 30 per unit as variable cost and ₹  5 per unit of fixed cost. What will be the total cost of producing 10 units?

1.  ₹  300
2.  ₹  35
3.  ₹  305
4.  ₹  350

Answer: 4. ₹ 350

A company produces 10 units of output and incurs ₹ 30 per unit as variable cost and ₹  5 per unit of fixed cost.

The total cost of producing 10 units is:

Total Cost → Total Fixed Cost + Total Var. Cost

⇒ 10 × 5 + 10 × 30

⇒ 50 + 300

= ₹ 350

Question 71. Based on the following data, what will be the marginal cost of the 6th unit of output?

1.  ₹ 133
2.  ₹ 75
3.  ₹ 80
4.  ₹ 450

Answer:  3. ₹ 80

Question 72. The positively sloped (rising) part of the long-run average cost curve indicates the working of the_________________.

1. Diseconomies of scale
2. Increasing returns to scale
3. Constant returns to scale
4. Economies of scale

Answer:  1. Diseconomies of scale

The positively sloped (rising) part of the long-run average cost curve indicates the working of the diseconomies of scale. Because rising LFAC and diminishing returns to scale result from internal and external diseconomies of scale.

Question 73.  The average fixed cost curve is always

• Declining when output increases
• U-shaped, if there are increasing returns to scale
• U-shaped, if there are decreasing returns to scale
• Intersected by marginal cost at its minimum point

Answer: 1. Declining when output increases

Average fixed cost will steadily decline as output increases. If we draw an AFC it will slope downwards throughout its length but will not touch the x-axis as AFC can’t be zero.

Question 74.  The planning curve is related to which of the following?

1. Short-run average cost curve
2. The long-run average cost curve
3. Average variable cost
4. Average total cost.

Answer: 2. Long run average cost curve

Answer: 4. Average total cost.

A long-range average cost curve is often called a planning curve because a firm plans to produce any output in long run by choosing a particular plant in the long run and the average cost curve corresponding to the given output.

Question 75. Using the following data find out the marginal cost (MC) of the sixth unit Solve the question

1. 24
2. 16
3. 20
4. 21

Answer: 3. 20

M C = ΔTC/ ΔQ

=   MC_n = TC_n – TC_n-1

=  MC₆ = TC₆ – TC₅

MC = 168 – 148

= 20

Question 76. What will be the marginal cost, when output is 5 units?

1. 300
2. 400
3. 500
4. 600

Answer: 1. 300

M.C = Δ T.C / ΔQ =  Change in Total Cost/ Change in Quantity

T.F.C = 500

T.V.C for 5 units =1,600

T.C. for 5 units

= T.F.C + T.V.C

= 500 + 1,600

= 2,100

T.F.C = 500

T.V.C for 1 unit = 400

T.C. for 1 unit

= 500 + 400 = 900

= \(\frac{1200}{4}\)  = 300

Question 77. Diminishing marginal returns implies

1. Decreasing average variable costs
2. Decreasing marginal costs
3. Increasing marginal costs
4. Decreasing fixed costs.

Answer: 3. Increasing marginal costs

It states that as one input variable is increased there is a point at which the marginal increase in output increases and then begins to decrease, leading to an increase in the marginal cost with every additional unit.

Question 78. When the output of a firm increases in the short run, its average fixed cost

1. Increases
2. Decreases
3. Remains constant
4. First declines and then rises.

Answer: 2. Decreases

Since TFC is a constant amount, AFC will steadily fall as output increases.

Question 79.  Which of the following cost curves is never ‘U’ shaped?

1. Average cost curve
2. Marginal cost curve
3. Average variable cost curve
4. Average fixed cost curve.

Answer: 4. Average fixed cost curve.

The average fixed cost curve is never “U” shaped because it slopes Downward through its length and never touches X1 axis.

Question 80. Fixed cost curve normally

1. Starts from the origin
2. Is U shaped
3. Is vertical line
4. Is a horizontal line.

Answer: 4. Is a horizontal line.

Fixed costs are those costs which are independent of output i.e. they do not change with changes in output. Thus, the fixed cost curve normally is a horizontal line.

Question 81. A rational producer will produce in the stage in which the marginal product is positive and

1. MP > AP
2. MP = AP
3. MP < AP
4. MP is zero.

Answer: 3. MP < AP

A rational producer will produce in the stage in which the marginal product is positive and MP<AP. As in this case, a producer could increase the average product of labour by decreasing the quantity of labour slightly.

Question 82. The vertical difference between TVC and TC curves is equal to

1. MC
2. A VC
3. TFC
4. None of the above.

Answer: 3. TFC

The total cost of a business is the sum of total variable cost and total fixed cost or symbolically TC = TFC + TVC. upward showing thereby that as output increases, total variable cost increases. This curve starts from the origin which shows when output is zero,  variable costs are also nil. The total cost curve thus has been obtained by adding vertically the total fixed cost curve and the total variable cost curve.

Question 83. What happens to marginal cost when average cost increases?

1. Marginal cost is below average cost
2. Marginal cost is above average cost
3. Marginal cost is equal to average variable cost
4. Marginal cost is equal to average cost.

Answer: 2. Marginal cost is above average cost

The relationship between marginal cost and the average cost is the same as that between any other marginal average quantity when the average cost rises as a result of an increase in output marginal cost is more than the average cost.

Question 84. If the market price of good is more than the opportunity cost of producing it, then

1. The market price of the product will increase in the long run
2. Producers will increase supply in the long run
3. Marginal cost is above average cost
4. The situation will remain unchanged as long as supply and demand remain in balance. ‘

Answer: 2. Marginal cost is above average cost

If the market price of a good is more than the opportunity cost of producing it then the producer will increase supply in the long run that is the amount of a good or service that producers are willing and able to offer to the market at various prices during the time.

Question 85.  A firm has variable costs of ₹ 1,000 at 5 units of output. If fixed costs are X 400. what will be the average total cost at 5 units of output?

1. 360
2. 600
3. 260
4. 400

Answer:  3. 260

A firm has variable costs of ₹ 1,000 at 5 units of output. If fixed costs are X 400.

Variable Cost = ₹ 1,000 at 5 unit Fixed Cost = ₹ 400

Total cost = Variable cost + Fixed cost v =1000 + 400

= 1400 at 5 units.

Average total cost = \(\frac{1400}{5}\)

= ₹ 280

Question 86.  The average total cost of producing 50 units is ₹ 250 and the total fixed cost is ₹ 1,000. What is the average fixed cost of producing 100 units?

1. 5
2. 30
3. 20
4. 10

Answer: 4. 10

The average total cost of producing 50 units is ₹ 250 and the total fixed cost is ₹ 1,000.

ATC of 50 units = ₹ 250

TFC =  ₹1,000

AFC of 100 units = \(\frac{1000}{100}\)

= ₹ 10

Question 87. When the average fixed cost is ₹ 20 at 6 units of output, what will it be at 4 units of output?

1. ₹ 60
2. ₹ 30
3. ₹ 40
4.  20

Answer: 2. ₹ 30

AFC = 20 at 6 units of output

TFC = 20 × 6

= 120

AFC at 4 units of output

= \(\frac{120}{4}\)

= ₹  30

Question 88. Modern industrial units face ____________________ technology of production.

1. U shaped
2. L shaped
3. Dish shaped
4. J shaped

Answer: 2. L shaped

L-shaped cost curve.

U U-shaped cost curve could exist only when the state of technology remains constant but, the empirical evidence shows that the state of technology changes in the long run.

Therefore, modern industrial units face an ‘L’ shaped cost curve rather than ‘U’ shaped cost curve.

Question 89. What will be AVC in the production of 3 units according to the following cost data?

1. 80
2. 100
3. 110
4. 240

Answer: 2. 100

AVC = TVC/Q

= TC- TFC/ Q

= \(\frac{380-140}{3}\)

= \(\frac{240}{3}\)

= 80.

Question 90. The costs which remain fixed over a certain range of output but suddenly jump to a new higher level when production goes beyond a given limit  are called:

1. Variable cost
2. Semi-variable cost
3. Stair-step variable cost
4. Jumping cost.

Answer: 3. Stair- step variable cost

Stair-Step Variable Costs are the costs which increase in a stair-step fashion i.e. they remain fixed over a certain range of output, but suddenly jump to a new higher level when output goes beyond a given limit. example. The fixed salary of the foreman will have a sudden jump if another foreman is appointed when the output crosses a particular limit.

Question 91. A firm producing 9 units of output has an average total cost of ? 200 and has to pay ₹ 630 to its fixed cost of production. How much of the average total cost is made up of variable costs?

1. ₹ 150
2. ₹ 130
3. ₹ 70
4. ₹ 300

Answer: 2.₹  130

A firm producing 9 units of output has an average total cost of ? 200 and has to pay ₹ 630 to its fixed cost of production.

Variable Cost = Total Cost – Fixed Cost = (200 × 9) – 630

= 1,170

AVC = TVC/Q

⇒ \(\frac{1170}{9}\)

= ₹ 130

Question 92. The cost of one thing in terms of alternative given up is known as

1. Opportunity Cost
2. Real Cost
3. Production Cost
4. Physical Cost.

Answer: 1. Opportunity Cost

Opportunity cost is concerned with the cost of forgone opportunity; it involves a comparison between the policy that was chosen and the policy that was rejected.

For example, the opportunity cost of using capital is the interest that it can earn in the next best use with equal risk.

Question 93. In the short run, when the output of a firm increases, its average fixed cost

1. Remains constant
2. Decreases
3. Increases
4. First decreases and then rises

Answer: 2. Decreases

Yes in the short run, when the output of a firm increases its average fixed cost decreases. When the output is 100 units the AFC will be ₹  20. And now if the output increases to 200 units, AFC will be ₹ 10. Hence, cost decreases.

Question 94. What will be the average variable cost of producing 5 units of blankets as per the details given in the following table?

1. ₹ 500
2. ₹ 750
3.  900
4.  1,000

Answer: 3. ₹ 900

Average variable Difference in Total Cost/Difference in units

⇒ \(\frac{6000-1500}{5-0}\)

= \(\frac{4500}{5}\)

= ₹ 900 per unit

Question 95. Which of the following is/are example(s) of an economic cost?

1. Wage paid to labourers
2. Raw materials purchase, cost
3. Interest paid on short-term loan
4. All of the above

Answer: 4. All of the above

Economic cost = explicit cost + implicit cost.

Explicit cost refers to those costs only which involve cash payments of the entrepreneur of the firm.

Implicit cost refers to the amount of money the entrepreneur could have earned if he had invested his money and sold his services and other factors in the next best alternatives.

Question 96. Opportunity Cost is:

1. Marginal cost
2. Variable cost
3. Total fixed cost
4. None of these.

Answer: 4. None of these.

Opportunity Cost of a given activity is defined as the value of the next best activity and it is not related to any cost. It means sacrificing of one good for another good to give satisfaction to self.

Question 97. The “law of diminishing returns ” applies to

1. The short run, but not the long run
2. The long run, but not the short run
3. Both the short run and the long run
4. Neither the short run nor the long run
5. Answer: 1. The short run, but not the long run

The law of diminishing return’ applies to the short run but not in the long run as in the short run a fixed cost does not change while a variable cost changes but in the long run both change. Supply Production cannot increase in the short run whether there is a loss or profit.

Question 98. Linear homogenous production function is based on

1. Increasing returns to scale
2. Decreasing returns to scale
3. Constant returns to scale
4. None of the above.

Answer: 3. Constant returns to scale

Linear Homogenous production is based on constant return to scale because output increases in the same way as an increase in input or we can say that an increase in output is equal to an increase in input. Sole proprietorship production is based on a constant return to scale for a lifetime.

Question 99. Which of the following cun/e is not U-shaped?

1. AFC
2. MC
3. AVC
4. TC

Answer: 1. AFC

AFC is the cost obtained by dividing the total fixed cost by the number of units of output.

AFC = TFC/Q

= (Total Fixed Cost)/ (No. of units of output)

TFC can never be U-shaped as it will fall as total output increases and will not touch the X-axis. It can also never be zero.

Question 100. Which of the following curves never touches any axis but is downward

1. Marginal cost curve
2. Total cost curve
3. Average fixed cost curve
4. Average variable cost curve

Answer:  3. Average fixed cost curve

Average fixed cost is a curve that cannot touch any axis so, it can never be zero. When total production increases then average fixed cost steadily falls but never touches the axis.

Question 101. External economies accrue due to __________________

1. Increasing returns to scale
2. Increasing returns to factor
3. Law of variable proportions
4. LOW cost

Answer: 1. Increasing returns to scale

Increasing return to scale means when there is an increase in output is more than an increase in input or in other words increases in, output an increase in input and there are some factors or external economies which tend to increase return to scale.

Question 102. A firm’s average fixed cost is ? 20 at 6 units of output what will be at 3 units of output?

1. ₹ 60
2. ₹ 30
3. ₹ 40
4. ₹ 20

Answer: 3. ₹ 40

The average fixed cost is 20 at 6 units and what will be at 3 units

AFC at 6 units = 20

AFC at 3 units = \(\frac{20}{3}\)  × 6

= ₹ 40

As we AFC is decreasing steadily by increasing total production. So, AFC at 3 units is 40, and at 6 is 20.

Question 103. Which of the following is correct?

1. AFC = AVC + ATC
2. ATC = AFC-AVC
3. AVC = AFC + ATC
4. AFC = ATC-AVC

Answer: 4. AFC = ATC-AVC

Average fixed can be obtained in two ways:

AFC =  TFC/ Q=  Total Fixed Cost / Number of units of output

AFC = ATC-AVC

Where, ATC = Average total cost and AVC = Average variable cost. .

Question 104. The vertical difference between TVC and TC curves is equal to

1. MC
2. AVC
3. TFC
4. None of the above.

Answer: 3. TFC

Total Variable Cost (TVC) and Total Cost (TC) is differences of TFC (Total Fixed Cost) Formula Derived is:

TC = TVC + TFC

TC – TVC = TFC

This is the vertical difference between Total Variable Cost and Total Cost.

Question 105. The cost of one thing in terms of alternative given up

1. Real cost
2. Production cost
3. Opportunity cost
4. Physical cost (1 mark)

Answer: 3. Opportunity cost

Opportunity cost is the cost that means the next best activity or sacrificing of one good thing for another.

Question 106. The cost which remains fixed over a certain range of output but suddenly jumps to a new higher level when production goes beyond a given limit are called

1. Variable cost
2. Semi-variable cost
3. Stair-step variable cost
4. Jumping cost

Answer: 3. Stair-step variable cost

2 Stair-step Variable cost which means the cost which remains fixed for a long time but suddenly jumps to a new higher level when production goes beyond a given limit.

Question 107. The shape of the Average Fixed cost curve is?

1. Falls from left to right
2. Rises from left to right
3. Parallel to x-axis
4. Parallel to y-axis

Answer: 1. Falls from left to right

The shape of Average Fixed Cost is hyperbola in shape it falls from left to right but does not touch the x-axis.

Question 108. The price of a commodity is best expressed as

1. Exchange value
2. Cost of goods sold
3. Production cost
4. Nominal value

Answer: 1. Exchange value

The price of a commodity is expressed as its exchange value as it is the price at which jt will be sold or purchased.

Question 109. Accounting cost is Economic cost

1. Equal to
2. Less than
3. More than
4. Not Included

Answer: 2. Less than

Accounting cost is explicit cost and economic cost is Explicit + Cost + National cost therefore, accounting cost is less than economic cost.

Question 110. When AC Curve is at minimum then MC Curve is?

1. Minimum then AC Curve
2. Equals to AC Curve
3. ‘ Above AC Curve
4. Less than AC Cun/e

Answer: 2. Equals to AC Curve

When the average cost is minimum, MC is equal to the Ac. In other words, the MC curve cuts the AC curve at its minimum point.

Question 111. Which of the following equations represents the profit maximisation condition?

1. MC = MR
2. MC > MR
3. – MC < MR
4. None.

Answer: 1. MC = MR

Profit will be at the maximum level when marginal Revenue is equal to marginal cost therefore, it can cover its cost and survive in the economy.

Question 112. MC curve of a firm in a perfectly competitive industry depicts?

1. Demand curve
2. Supply curve
3. Average cost curve
4. Total cost curve

Answer: 2. Supply curve

MC curve is rising upward in a competitive market therefore, it depicts the supply curve.

Question 113. Issues requiring decision-making in the context of business are:

1. How much should be the optimum output at what price should the firm sell?
2. How will the product be placed in the market?
3. How to combat the risks and uncertainties involved?
4. All of the above.

Answer:  4. All of the above.

All the given options are required for making business decisions in the context of business therefore, the answer will be (4) all of the above.

Question 114. The law of production does not include?

1. Returns to scale
2. Law of variable proportion
3. Law of diminishing returns to a factor
4. Least cost combination factors

Answer: 4. Least cost combination factors

The least cost combination factor is not included in the law of production function.

Question 115. A firm producing 15 units of output has an average cost of ₹ 250 and ₹ 125 as per unit cost for fixed factors of production.

The average variable cost will be

1. 180
2. 150
3. 125
4. None of the above

Answer: 3. 125

Average total cost (ATC) = AFC + AVC

ATC = 250; AFC = 125

AVC =  ATC- AFC

= 250-125

= ₹ 125

Question 116. Which of the following statements is incorrect?

1. AC is sloping downwards, MC is below AC
2. AC is sloping downwards, MC must fall
3. AC is sloping upwards, MC is above AC
4. MC cuts AC at its lowest point.

Answer: 2. AC is sloping downwards, MC must fall

The relationship between Average cost and Marginal cost is as follows:

• When average cost falls as a result of an increase in output, marginal cost is less than average cost.
• When the average cost rises as a result of an increase in output, the marginal cost is more than the average cost.
• When the average cost is minimum, the marginal cost is equal to the average cost.

Question 117. Diminishing marginal returns implies.

1. Decreasing average fixed cost *
2. Decreasing average variable cost
3. Decreasing marginal cost
4. Increasing marginal cost

Answer: 4. Increasing marginal cost

Diminishing marginal Returns implies an increase in marginal cost.

Marginal cost is the increase in the total cost of production if one additional unit of output is produced.

Question 118. Opportunity Cost is

1. Recorded in the book of accounts
2. Sacrificed alternative
3. Both (1) and (2)
4. None of the above

Answer: 4. None of the above

Opportunity cost is the cost of the next best alternative foregone. It is generally not recorded in the books of accounts. Thus, it can be said that opportunity cost is the sacrificed alternative whose cost is not recorded in books of accounts.

Question 119. Which of the following is true? 

1. TC = TFC + TVC
2. TC + TVC + TFC
3. 2TC – TVC = TFC
4. None

Answer: 1. TC = TFC + TVC

Total Cost = Total Fixed Cost + Total Variable Cost i.e. TC =  TFC + TVC

Question 120. Total Economic Cost = Explicit Cost + Implicit Cost

1. Normal Profit
2. Super Normal Profit
3. Loss
4. None

Answer: 1. Normal Profit

Total Economic Cost = Explicit Cost + Implicit Cost + Normal Profit

As economic cost includes :

1. Normal return a money capital invested by the entrepreneur himself in his cum business.
2. The wages or salary not paid to the entrepreneur, but could have been earned if the services had been sold somewhere else.
3. It also takes into account, accounting costs. And also the normal profit earned.

Question 121. The economic cost of production differs from the accounting cost of production

1. Partially True
2. True
3. False
4. None

Answer: 2. True

• The economic cost of production differs from the accounting cost. production is TRUE as
• Economic cost includes both explicit cost and implicit cost.
• Whereas Accounting cost only includes the amount spent i.e. Explicit Cost

Question 122. Which curve is never U- U-shaped

1. AFC
2. AVC
3. AC
4. None

Answer: 1. AFC

The average fixed cost curve is never U-shaped. The average Fixed Cost diminishes as the production increases (though the fixed cost remains constant) .

AFC = TF/ Q

It will slope downwards throughout its length but will not touch the X-axis as AFC cannot be zero.

And AVC and AC curves are U-shaped i.e.

Question 123. Use the table and answer the following questions

The average fixed cost of 4 units of output is:

1. 80
2. 90
3. 25
4. 350

Answer: 3. 25

In the given table, we see that o level of output TC = 100 which is also equal to TFC.

TC = TFC= 100

Thus TFC of 4 units = 100

AFC = TFC/Q

= \(\frac{100}{4}\)

= 25

Question 124. The average variable cost of 5 units of output

1. 84
2. 64
3. 420
4. 104

Answer:  2. 64

AVC at 5 units

AFC = TVC/Q

TVC = TC-TFC

= 420- 100

= 320

= \(\frac{320}{5}\)

= 64

Question 125. The marginal cost of 5th unit of output is

1. 60
2. 70
3. 540
4. 90

Answer: 1. 60

MC = at 5 units MC = TC₅-TC_5-1

= TC₅ – TC₄

= 420 – 360

= 60

Question 126. The total cost is ₹ 4,200 and the fixed cost is ₹ 1,200 then find the variable cost

1. ₹ 5,450
2. ₹ 1,200
3. ₹ 4,200
4. ₹ 3,000

Answer: 4. ₹ 3000

TC = 4200

TFC = 1200

Variable cost = ₹ 4200 – v 1200,

= ₹  3000

Question 127. A Firm producing 7 units of output has an average total cost of ₹ 150 and has to pay₹  350 to its fixed factors of production whether it produces or not? How much of the average total cost is made up of variable costs?

1. 200
2. 50
3. 300
4. 100

Answer: 4. 100

A Firm producing 7 units of output has an average total cost of ₹ 150 and has to pay₹  350 to its fixed factors of production whether it produces or not?

Units = 7, ATC= 150, PC = 350

150 × 7 = TC

TC = 1050

TC = FC + VC

1050 = 350 + 700

ATC = AFC + AVC

TC/Q = FC/Q+ VC/Q

= \(\frac{1050}{7}\) = \(\frac{350}{7}\)+ \(\frac{700}{7}\)

= 150 = 50 + 100

Thus Average variable cost is ₹ 100.

Question 128. A Firm has a variable cost of X 2,000 at 5 units of output. If fixed costs are? 800, what will be the average total cost at 5 units of output?

1. 560
2. 120
3. 240
4. 2,800

Answer: 1. 560

A Firm has a variable cost of X 2,000 at 5 units of output. If fixed costs are? 800,

Units = 5

VC= 2000

Fc= 800

TC = FC + VC

= 2000 + 800

= 2800

ATC = TC/ Q

= \(\frac{2800}{5}\)

= 560

Question 129. Which of the following Statements is false?

1. Economic costs include the opportunity costs of the resources owned by the firm.
2. Accounting costs include only explicit costs.
3. Economic profit will always be less than accounting profit if resources owned and used by the firm have any opportunity costs.
4. Accounting profit is equal to total revenue less implicit costs.

Answer: 4. Accounting profit is equal to total revenue less implicit costs.

Accounting profit is equal to total revenue less implicit cost Accounting profit = TR – Implicit Cost

Question 130. The average cost curve is

1. ‘U’ Shaped
2. Positively sloped
3. Negatively sloped
4. Rectangular hyperbola

Answer: 1. ‘U’ shaped. –

The average cost curve is ‘U’ shaped due to the law of variable proportion.

Question 131.  Isoquants are equal to

1. Product lines
2. Total utility lines
3. Cost lines
4. Revenue lines

Answer: 1. Product lines

An Isoquant consists of alternative combinations of input to produce a given quantity of output and product lines are lines representing various combinations of factors of production to produce a given output.

Question 132. Average fixed cost can be obtained through.

1. AFC = TFC/TS
2. AFC= EC/TU
3. AFC= TC/PC
4. AFC = TFC/TU

Answer:  4. AFC = TFC/TU

Use the table below to answer Questions 133 to 135.

Question 133.  The average fixed cost of 3 units of output is ______________

1. 180
2. 225
3. 120
4. 134

Answer: 3. ₹ 120

AFc = IFC/Q

AFC = \(\frac{360}{3}\)

= ₹120

AFC = ₹ 120

Question 134. The marginal cost of the fifth unit of output is _______________

1. ₹  174
2. ₹ 225
3. ₹ 675
4. ₹ 105

Answer:  4. ₹ 105

Marginal Cost of the Fifth unit  = 105

Question 135. Diminishing marginal returns starts to occur between __________________units

1. 4 and 5
2. 3 and 2
3. 5 and 6
4. 1 and 2

Answer:  1. 4 and 5

According to the above table, Diminishing marginal return starts to occur between 4 and 5 units.

Question 136. The difference between TFC and TC is equal to

1. Zero
2. TVC
3. MC
4. AFC

Answer:  2. TVC

The difference between TFC and TC is equal to TVC

TC = TFC +TVC

TVC = TC – TFC

Question 137. The Marginal Revenue curve moves________________ and the Marginal cost curve moves ______________

1. Downward,  Downward,
2. Downward, Upward upward,
3. Upward,  Downward,
4. Downward, Remains same.

Answer:  2. Downward, Upward upward,

The marginal revenue curve is downward sloping and below the demand curve and the additional gain from increasing the quantity sold is lower than the chosen market price. Both these curves are intersected at their minimum points by Marginal Cost (MC), which slopes upward.

If the price of the variable input increases all three cost curves move upwards as shown alongside. They retain their shape and characteristics as described above.

Question 138. The average revenue curve is also known as

1. Firm’s Demand Curve
2. Marginal Revenue Curve
3. Total Revenue Curve
4. Marginal Cost Curve

Answer:  1. Firm’s Demand Curve

The average revenue curve is also known as a demand card in the business market. Average revenue is the division of total revenue (TR) by quantity (Q) which also means Average revenue is equal to the price of each product.

Question 139. If quantity demanded for a commodity increases from 15 units to 20 units there is a 25 percent decrease in price. If the initial price was ₹ 20, then what is the marginal revenue?

1. 15
2. 20
3. 0
4. 10

Answer:  3. 0

If quantity demanded for a commodity increases from 15 units to 20 units there is a 25% decrease in price. The initial price is ₹ 20;

⇒ 20-25 % of 20

= 20-5

= ₹15

Then marginal revenue will be zero.

Question 140. The marginal, average and total product curves encountered by the firm producing in the short-run exhibit all of the following relationships except ______________

1. When TP is rising, Average and Marginal products may be either rising or falling.
2. When the marginal product is negative, the total product and Average Product is falling
3. When the Average product is maximum, marginal product equals Average Product and the total product is rising
4. When Marginal Product is at maximum, Average Product equals Marginal Product and the total product is rising

Answer: 4. When Marginal Product is at maximum, Average Product equals Marginal Product and total product is rising

The marginal, average and total product curves encountered by the firm producing in the short run exhibit all of the following relationships except when marginal product is at maximum, average product equals marginal product and total product is rising.

Question 141. Marginal cost can be directly derived from 

1. Total variable cost
2. Total fixed cost.
3. Average cost
4. Average fixed cost

Answer: 2. Total fixed cost.

It is derived from the variable cost of production, given that fixed costs do not change as output changes, hence, no additional fixed cost is incurred in producing another unit of a good or service once production has already started.

Question 142. Total economic cost = implicit cost + explicit cost +

1. Normal Profit
2. Abnormal Profit
3. Economic Profit
4. None of the above

Answer: 1. Normal Profit

Total economic cost

1. Implicit Cost +
2. Explicit Cost  +
3. Normal Cost.

Question 143. The marginal product of a variable input is described as?

1. The additional output resulting from one unit increase in both the variable and fixed inputs
2. The additional output resulting from one unit increase in fixed input
3. The additional output resulting from one unit increase in the variable inputs
4. The additional output resulting from all unit increases in variable inputs

Answer:  3. The additional output resulting from one unit increase in the variable inputs

The marginal cost is the cost of producing one extra unit of output, in the short run, the fixed cost does not change by producing one ‘ extra unit, thus the marginal cost is entirely comprised of the variable cost.

Question 144. Total profits are maximized when?

1. TR equal TC
2. The TR curve and the TC curve are parallel
3. TC exceeds TR
4. TR exceeds TC

Answer: 4. TR exceeds TC

The profits are maximized where the gap between the total revenue and the total cost curves is the maximum. This happens only when both the curves are parallel to each other. The profits will be positive only when the total revenues exceed the total cost.

Question 145. A firm producing 7 units of output has an average total cost of 7 150 and has to pay 7 350 to its fixed factors of production whether it produces or not. How much of the average total cost is made up of variable costs?

1. ₹ 100
2. ₹ 200
3. ₹ 50
4. ₹ 300

Answer: 1. 100

Number of units = 7

ATC = ₹150

TFC = ₹ 350

AVC = ATC- AFC

= 150-50

= ₹ 100

Question 146. Economic costs include

1. Implicit costs
2. Explicit costs
3. Implicit and explicit costs
4. None of the above

Answer: 3. Implicit and explicit costs

Economic costs include both Explicit and implicit costs. Therefore, economic costs are useful for businessmen while making decisions.

Question 147. At the shut-down point, the price is

1. Below ATC
2. Below AVC
3. Equal to ATC
4. Above AVC

Answer:  2. Below AVC

The firm always has the option of not producing at all. If a firm’s total revenues are not enough to make goods even the total variable cost. The firm should shut down. In other words, a competitive firm should shut down if the price is below AVC

Question 148. Economic cost includes which of the following?

1. Accounting cost
2. Implicit cost
3. Both (1) and (2)
4. None of the above

Answer: 3. None of the above

Both (1) and (2)

Economic cost includes both accounting cost (actual payment) and implicit cost (notional expense).

Question 149. External economies are due to

1. Development of skilled labor
2. Technologies
3. Cheaper raw material
4. All of the above

Answer: 4. All of the above

External Economies are due to the development of skilled labour, technology, cheaper raw materials, etc.

Question 150. The planning curve is related to

1. Long-run average cost curves
2. Short-run average cost curves
3. Average revenue curve
4. None of the above

Answer: 1. Long-run average cost curves

Long Run Average Cost Curve:

Long Run Average Cost Curve is after called a planning curve because a firm plans to produce any output in the long run by choosing a plant on the long-run average cost curve.

CA Foundation Economics – Price Determination Different Markets  Multiple Choice Questions

Question 1. Which of the following is not an essential condition of pure competition?

1. A large number of buyers and sellers
2. Homogeneous product
3. Freedom of entry
4. Absence of transport cost

Answer:  4. Absence of transport cost

Pure competition is a part of perfect competition. The essential conditions of pure competition are:

• A large number of buyers and sellers
• Homogeneous products ‘
• Freedom of entry and exit of firms.

Question 2. Under which of the following forms of market structure does a firm have no control over the price of its product:

1. Monopoly
2. Oligopoly
3. Monopolistic competition
4. Perfect competition

Answer: 4. Perfect competition

Perfect competition is a price-taking firm. The prices in such a, market are determined by market forces of demand and supply. Neither the buyer nor the seller can influence the prices.

Question 3. Given the relation mR = P(1-1/e) if e>1 then

1. MR > 0
2. MR< 0
3. MR = 0
4. None

Answer: 1. MR > 0

Question 4. Profits of the firm will be more at

1. MR = MC
2. Additional revenue from extra units equals its additional cost
3. Both of the above.
4. None

Answer: 3. Both of the above.

Profits of the firm are maximum at profit maximization level i.e. MC=MR, Additional revenue from extra unit equals its additional cost.

Question 5. What should the firm do when Marginal revenue is greater than marginal cost?

1. The firm should expand the output
2. The effect should be made to make them equal
3. Prices should be covered down
4. All of these

Answer: 1. Prices should be covered down

When marginal revenue is greater than marginal cost, the producer shall expand output as it is profitable for the firm to expand output.

Question 6. Under a monopoly price discrimination depends upon 

1. The elasticity of demand for the commodity
2. The elasticity of supply for a commodity
3. Size of market
4. All of above

Answer: 1. Elasticity of demand for commodity

Monopoly has a feature of price discrimination i.e. charging different prices from, different customers. It depends upon the elasticity of demand of various customers. Differences in elasticity forces the monopolist to charge different prices from different customers.

Question 7. Firms in a monopolistic market are price 

1. Takers
2. Givers
3. Makers
4. Acceptors

Answer: 3. Makers

In a monopoly market, the prices are decided by the monopolist. He is the maker of the price. Buyers cannot influence the prices.

Question 8. The market which has two firms are known as :

1. Oligopoly
2. Duopoly
3. Monopsony
4. Oligopsony

Answer: 2. Duopoly

Duopoly is composed of two words – “Duo” and “Poly”. Duo means two and “poly” means seller. Hence, a duopoly is a market where there are two sellers.

Question 9. Monopolist can determine 

1. Price
2. Output
3. Either price or output
4. None

Answer: 3. Either price or output

A monopolist firm is a price-maker firm. In this market, only the seller can influence the prices. He can determine either output or price.

Question 10. MR of the th unit is given by 

1. TR_n/TR_n-1
2. TR_n + TR_n-1
3. TR_n-TR_n-1
4. All of these

Answer: 3. TR_n-TR_n-1

Marginal revenue is the addition made to the total revenue by producing one more unit of a commodity.

∴ It is expressed as: M.R._n =TR_n-TR_n-1

Question 11. The market structure in which the number of sellers is small and there is interdependence in decision-making by the firms is known as 

1. Perfect competition
2. Oligopoly
3. Monopoly
4. Monopolistic competition

Answer: 2. Monopoly

Oligopoly is often described as “competition among the few”. It is characterized by a small number of sellers who are interdependent in decision-making.

Question 12. In perfect competition, since the firm is a price taker, the ____________________  curve is a straight line 

1. Marginal cost
2. Total cost
3. Total revenue
4. Marginal revenue

Answer: 4. Marginal revenue

In a perfectly competitive market, the prices of all the firms are the same. Hence, there is no change in marginal revenue and the MR curve is a straight line.

Question 13. For a discriminating monopolist, the condition for equilibrium is

1. MR > MC
2. MR₁ = MR₂
3. MR_a = MR_b = MC
4. All of the above.

Answer: 3. MR_a = MR_b = M_c

One of the important conditions of price discrimination is that the seller should be able to divide his market into two or more submarkets. If marginal revenue in both markets is different then price discrimination is possible.

The seller will transfer his products more to that market which gives more marginal revenue. Suppose the MR of market A is more than market B.So the seller will transfer the products from market B to market. Due to this, the prices of market B will rise and A will fall.

Gradually the MR of B will start increasing. He will continue to transfer units from B to A till the marginal revenue from both markets becomes equal. After this point, it will be no longer profitable to transfer units and hence the position of equilibrium will be when

MR_a = MR_b = M_c

Question 14. The average revenue curve is also known as

1. Profit curve
2. Demand curve
3. Supply curve
4. Average cost curve.

Answer: 2. Demand curve

In a perfect competition market, the same price prevails throughout the market. Since the price is constant hence the demand of the commodity determines the total revenue and average revenue. Due to this reason, the A.R. curve can also be called the demand curve.

Question 15. Given, AR = 5 and Elasticity of demand = 2 Find MR.

1. +2.5
2. -2.5
3. +1.5
4. + 2.0

Answer: 1. +2.5

Given, AR = 5 and Elasticity of demand = 2

MR = AR × (e-1)/ e

= 5× \(\frac{2-1}{2}\)

= 5 × \(\frac{1}{2}\)

= + 2.5

Question 16. If a seller obtains ₹ 3,000 after selling 50 units and ₹ 3,100 after selling 52 units, then marginal revenue will be

1. ₹ 59.62
2. ₹ 50.00
3. ₹ 60.00
4. ₹  59.80

Answer: 2. ₹ 50.00

A seller obtains ₹ 3,000 after selling 50 units and ₹ 3,100 after selling 52 units

S.P of 50 units = ₹ 3,000

S.P of 52 units = ₹ 3, 100

∴ S.P of additional 2 units = ₹ 100 & marginal revenue of 1 unit

= \(\frac{100}{2}\)

= ₹ 50

Question 17. A firm will close down in the short period if its AR is less than :

1. AC
2. AVC
3. MC
4. None of the above

Answer:  2. AVC

In the short run, if the firm can meet its VC and a part of the fixed cost it will try to continue production. If it recovers a part of FC, it will be beneficial to continue production. However, if a firm is unable to meet its AVC, it will be better for it to shut down.

Question 18. Which one of the following expressions is correct for Marginal Revenue?

MR = AR (1-e)/e

MR = TR₁ – TR_n-1

MR – ΔTR / Δ Q

MR = TR/Q

Answer: 3. MR – ΔTR / Δ Q

Marginal revenue is the rate of change in total revenue resulting from the sale of an additional unit.

• Where MR is the marginal revenue
• TR is the total revenue
• Q is the number of commodities sold
• Stands for small change.

Question 19. The market for the ultimate consumer is known as

1. Wholesale market
2. Regulated market
3. Unregulated market
4. Retail market

Answer: 4. Retail market

The market for the ultimate consumer is known as the retail market.

Question 20. For a firm to become profitable it should expand output whenever

1. Marginal revenue is equal to marginal cost
2. Marginal revenue is less than marginal cost
3. Marginal revenue is greater than marginal cost
4. Average revenue is greater than average cost.

Answer: 3. Marginal revenue is greater than marginal cost

It will be profitable for the firm to expand output whenever marginal revenue is greater than the marginal cost, and to keep on expanding

output until marginal revenue equals marginal cost. Not only marginal cost should be equal to marginal revenue, but its curve should cut the marginal revenue curve from below.

Question 21. Based on the nature of transactions, a market may be classified into

1. Spot market and future market
2. Regulated market and unregulated market
3. Wholesale market and retail market
4. Local market and national market.

Answer: 1. Spot market and future market

Based on the nature of transactions market may be classified into:

1. Spot Market: It refers to those markets where goods are physically transacted on the spot.
2. Future Market: It is related to a transaction that involves contracts of a future date.

Question 22. In a very short period of the market:

1. Supply changes but demand remains the same
2. Supply changes but the price remains the same
3. Supply remains fixed
4. Supply and demand both changes

Answer: 3. Supply remains fixed

In a very short period market, it is not possible and easy to increase the supply as it is very difficult to install new machinery or increase more labor so, in this market supply is fixed.

This leads to only profitable commodities like vegetables flowers, fish, eggs, fruit, milk, etc. which are perishable and are examples of a very short period market.

Question 23. Which of the following is correct?

1. MR = AR (e – 1)/e
2. MR = AR (e +1)/e
3. MR = AR (1- e)/e
4. None of the above

Answer: 1. MR = AR (e – 1)/e

MR. AR and price elasticity of demand are uniquely related to one another through the formula, MR = AR × (e-1) / e, therefore, is the

Question 24. According to Behavioural Principles.

1. A firm should not produce at all if its total variable costs are not met.
2. A firm will be making maximum profits by expanding output to the’ level where marginal revenue is equal to marginal cost.
3. Both (1) and (2)
4. None of these

Answer: 3. Both (1) and (2)

According to Behavioural Principles:

1. Principle 1: A firm should not produce at all if its total variable costs are not met is better to shut down in such a case.
2. Principle 2: The firm will be making maximum profits by expanding output to the level where marginal revenue is equal to marginal cost as additional units add more to revenue than to cost.

Question 25. Market consists of

1. Buyer and Seller
2. One price for one product at a given time
3. Both (1) and (2)
4. None

Answer: 3. None

A market is a collection of buyers and sellers with the potential to trade.

The elements of a market are:

• Buyers and sellers
• A product or service.
• Bargaining for a price
• Knowledge about market conditions and
• One price for a product or service at a given time.

Question 26. Demand for a product is unitary elastic then

1. MR = 0
2. MR > 0
3. MR<0
4. None of the above

Answer: 1. MR = 0

Marginal revenue, average revenue, and price elasticity are related through the following formula

MR = AR × (e-1)/e, e = Price elasticity of demand

If elasticity = 1, MR = AR × (1-1)/1

MR = AR × (0)/1

= 0

Question 27. Which of the following is true, when the firm is at equilibrium?

1. MC < MR
2. MC curve cuts the MR curve from below
3. Both (1) and (2)
4. None of the above

Answer: 2. The MC curve cuts the MR curve from below

At the point of equilibrium, MC = MR and

MC curves cut the MR curve from below. At this point, a firm will earn maximum profits,

Question 28. When TR is at its peak then MR is equal to 

1. Zero
2. Positive
3. Negative
4. None of the above.

Answer: 1. Zero

The relationship between TR and MR is that initially.

• Total Revenue curve increases at a diminishing rate due to diminishing marginal revenue.
• When marginal revenue becomes zero, total revenue is maximum. t
• Total revenue starts falling again when marginal revenue is negative.

Question 29. When the price is ₹ 20, the Quantity demanded is 10 units, and the price is decreased by 5% then the quantity demand is increased by 10% then the Marginal revenue is

1. 10
2. 11
3. 9
4. 20

Answer: 3. 9

When the price is ₹ 20, the Quantity demanded is 10 units, and the price is decreased by 5% then the quantity demand is increased by 10%

MR = TR/Q ; TR = P x Q

TR (existing)= 20 × 10 = 200

TR (new) = ((20 – (5% of 20)) × ( 10 + (10% of 10)).

= 19 × 11 = 209

ΔTR = 209 – 200 = 9

ΔQ = 20-19 = 1

MR = \(\frac{9}{1}\)

= 9

Question 30. Which of the following represents the supply curve in a perfect competitive market? 

1. MC curve
2. AC curve
3. AR curve
4. MR curve

Answer: 1. MC curve

A perfectly competitive firm’s supply curve is that portion of its marginal cost curve that lies above the minimum of the average variable cost curve.

In other words, the firm produces by moving up and down along its marginal cost curve. The marginal cost curve is thus the perfectly competitive firm’s supply curve.

Question 31. When TR is max, then MR is

1. Zero
2. One
3. Both (1) & (2)
4. None

Answer: 1. Zero

When Total Revenue is max, then Marginal Revenue is zero.

Question 32. ___________ is also called a free market as there are no stipulations on the transactions

1. Unregulated
2. Regulated
3. Retail
4. Spot

Answer: 1. Unregulated

• Unregulated Market: It is also called a free market as there are no stipulations on the transactions.
• Regulated Market: In this market, transactions are statutorily regulated to put an end to unfair practices. Such markets may be established for specific products or a group of products.
  • Example: Stock exchange.

Question 33. In this market, transactions involve contracts with a promise to pay and deliver goods at some future date

1. Spot market
2. Future market
3. Unregulated market
4. Retail market

Answer: 2. Future market

Based on the Nature of Transactions

• Spot or cash Market: Spot transactions or spot markets refer to those markets where goods are exchanged for money payable either immediately or within a short period.
• Forward or Future Market: In this market, transactions involve contracts with a promise to pay and deliver goods at some future date.

Question 34. A firm reaches its shutdown point

1. When the price is less than AVC in the long run.
2. When the price is less than AVC in the short run.
3. When the price is more than AC in the long run.
4. When the price is more than AC in the short run.

Answer: 2. When the price is less than AVC in the short run.

A firm reaches its shutdown point when the price is less than AVC in the short run

i.e. AR < AVC

AVC = Average Variable Cost AR = Average Revenue

It is a matter of common sense that a firm should produce only if it will do better by producing than by not producing. The firm always has the option of not producing at all.

If a firm’s total revenues are not enough to make good even the total variable cost, the firm should shut down.

In other words, a competitive firm should shut down if the price is below AVC.

Shutting down is temporary and does not necessarily mean going out of business.

Question 35. The demand for goods increases from 15 units to 16 units if the price decreases from ₹ 40 to ₹ 38. What will be the MR of the 16th unit?

1. 8
2. 16
3. 38
4. 15

Answer: 1. 8

The demand for goods increases from 15 units to 16 units if the price decreases from ₹ 40 to ₹ 38.

MRn= TR_n– Tr_n-1

MR₁₆ = TR₁₆– TR_16-1

MR₁₆ = TR₁₆– TR₁₅

MR₁₆ = 608 – 600

MR₁₆   = 8

Question 36. If a seller obtains ₹ 6,000 after selling 50 units and ₹ 6,204 after selling 53 units, then marginal revenue will be

1. 204
2. 68
3. 118
4. 120

Answer: 2. 68

If a seller obtains ₹ 6,000 after selling 50 units and ₹ 6,204 after selling 53 units

MR = TR/ Quantity

TR = P × Quantity

6000 = P × 50

⇒ \(\frac{6000}{50}\) = P × 50

120 = P

MR = \(\frac{6204-6000}{53-50}\)

= \(\frac{204}{3}\)

= 68

Question 37. Based on the nature of the transaction, a market may be classified into

1. Regulated and Unregulated Market –
2. Wholesale and Retail Market
3. Cash and Forward Market
4. National and International Market

Answer: 3. Cash and Forward Market

Cash and forward market: In this market, transactions involve contracts v/fth a promise to pay and deliver goods at some future date.

Question 38. When a firm produces 7 units of production and the TR is ₹ 42 after raising the production to 8 units TR reaches ₹46 marginal revenue will be

1. 6
2. 4
3. 5
4. 8

Answer: 2. 4

Question 39. A market where goods are exchanged for money payable either immediately or within a short space of time.

1. Forward market
2. Regulated market
3. Spot market
4. Wholesale market

Answer: 3. Spot market

Spot or cash market: Spot transactions or spot markets refer to those markets, where goods are exchanged for money payable, either immediately or within a short spot time.

Question 40. What is the average revenue when ABC Ltd. sells 121 units and TR is ₹ 6,050?

1. 6,000
2. 6,050
3. 50
4. 100

Answer: 3. 50

Average Revenue =  Total revenue/ Number of units

=  \(\frac{6050₹}{121units}\)

= ₹ 50 per unit

Question 41. When ABC Ltd. sells 130 units at ₹ 50 p.u. then total revenue will be

1. 18,550
2. 12,050
3. 6,000
4. 6,500

Answer: 4. 6,500

Total Revenue = Number of units × Revenue per unit

= 130 × ₹ 50

= ₹ 6500/-

Question 42. Answer the following questions

Find the marginal revenue at 5 th unit is:

1. 60
2. 55
3. 45
4. 40

Answer: 4. 40

Marginal revenue at 5th unit = TU_n – TU_n-1

= 400 – 360

= 40/-

Question 43. Which one is not a part of the elements of a market?

1. Buyers and sellers
2. A product or service
3. Bargaining for a price
4. Volume of business

Answer: 4. Volume of business

The element that is not a part of the market is the volume of business.

Question 44. In the market structure, the demand curve is also known as

1. Marginal cost curve
2. Average revenue curve
3. Total production curve
4. Marginal utility curve

Answer: 2. Average revenue curve

In the market structure demand curve is also known as the Average revenue curve

Question 45. The secular period is also known as 

1. Very short period
2. Very long period.
3. Short period
4. Long period

Answer: 2. Very long period

The secular period is also known as the very long period.

Question 46. The total revenue curve initially increases at a diminishing rate due to

1. Diminishing average revenue curve.
2. Diminishing marginal revenue curve.
3. Diminishing average fixed revenue curve.
4. Diminishing cost curve.

Answer: 2. Diminishing marginal revenue curve.

TR Curve, i.e. Total revenue curve initially increases at a diminishing rate due to the diminishing marginal revenue at stage 1 of the law of variable proportion.

Question 47. The total revenue curve is

1. Positively Sloped
2. Negatively Sloped
3. Downward Sloped
4. Vertical to X axis

Answer: 1. Positively Sloped

Total revenue i.e., (TR) curve is positively sloped in the case of a perfect competitive market.

Question 48. Marginal revenue will be positive where the price elasticity of demand is

1. Zero
2. More than one
3. Less than one
4. Equal to one

Answer: 2. More than one

Marginal revenue, average revenue, and price elasticity are related through the following formula.

MR = AR × (e-1) / e, e = Price elasticity of demand,

If the elasticity of more than one e > 1 MR will be positive

MR = AR × \(\frac{2-1}{2}\)

MR = 2 × \(\frac{1}{2}\)

= 1

Question 49. Does a seller realize ₹ 25,000/- after selling 15 units and he realizes ₹35,000/- after selling 25 units, what is the marginal revenue here? 

1. 2,500/-
2. 100/-
3. 1,000/-
4. 3,500/-

Answer: 3. 1,000/-

MR = TR/Q

MR = \(\frac{10000}{10}\)

= 1000

Question 50. Which of the following is the price at which the quantity demanded of a commodity is equal to the quantity supplied of the commodity and there is no unsold stock or no unsupplied demand?

1. Selling Price
2. Market Clearing Price
3. Asking Price
4. Future Price

Answer: 2. Market Clearing Price

Market clearing price is the price at which the quantity demanded of a commodity is equal to the quantity supplied of the commodity and there is no unsold stock or no unsupplied demand.

Question 51. Which of the following is not an element of a market?

1. Knowledge about market conditions.
2. No bargaining for a price
3. A product or service
4. Buyer and Seller

Answer: 2. No bargaining for a price

The elements of a market are:

• Buyers and sellers
• A product or Services
• Bargaining for a price
• Knowledge about market conditions
• One price for a product or service at a given time

Question 52. The________________ is the market where the commodities are bought and sold in bulk or large quantities transactions generally take place between trades.

1. Wholesale market
2. Regulated market
3. Local market
4. Retail market

Answer: 1. Wholesale market

Wholesale market is the market where the commodities are bought and sold in bulk or large quantities, transacties is generally take place between trades.

Question 53. Based on the nature of transactions market can be classified as

1. Wholesale market and retail market.
2. Future market and spot market.
3. Regulated market and unregulated market.
4. Money market and future market.

Answer: 2. Future market and spot market.

 Based on the Nature of Transactions:

1. Spot or cash market
2. Forward or future market

Question 54. Demand Curve is also known as

1. MR Curve
2. AR Curve
3. MC Curve
4. MR Reserve

Answer: 1. MR Curve

The demand curve is also known as the Marginal revenue curve in a market.

Question 55. Prices in monopoly are higher than prices under

1. Oligopoly
2. Duopoly
3. Monopoly
4. Perfect Competition

Answer: 4. Perfect Competition

Prices in a monopoly are high as compared to prices in perfect competition. Monopolies are price makers and charge prices to increase their revenues more as compared to other market forms.

Question 56. In an Oligopoly upper part shows which elasticity

1. Less than
2. Greater than
3. Zero
4. Negative

Answer: 2. Greater than

In oligopoly, the kinked demand curve has two parts the upper part being relatively more elastic and the lower part being less elastic than the upper part.

Question 57. Which of the following is closely related to perfect competition?

1. Mobiles
2. Cars
3. Utensils
4. Agricultural Products

Answer: 4. Agricultural Products

Agricultural products are not highly competitive markets but are closely related to a perfect competitive market.

Question 58. If the price of good is X 100 per unit & quantity demanded is 900 units. If the price decreases to X 90 per unit then the demand increases to 100 units calculate marginal revenue

1. 0
2. 10
3. 90
4. 100

Answer: 1. 0

If the price of good is X 100 per unit & quantity demanded is 900 units. If the price decreases to X 90 per unit then the demand increases to 100 units

Question 59. No substitutions are found in which form of Market

1. Perfect competition
2. Oligopoly
3. Monopoly
4. Monopolistic Competition

Answer: 3. Monopoly

No substitutes are found in the monopoly form of the market. An oligopoly has fewer substitutes as compared to a monopoly, but in perfect competition, every product is a substitute of each other.

Question 60. The market is the direct relationship between

1. Buyer and seller.
2. Whole seller and retailer
3. Consumer and manufactures
4. None of the above

Answer: 1. Buyer and seller.

The market is the direct relationship between a buyer and seller. Where the buyer and seller are the essential elements of the market and they influence the price.

Question 61. Which commodity is best for the short-term period market?

1. Fruits and Vegetables
2. Automobiles
3. Electronic goods
4. All of the above.

Answer: 1. Fruits and Vegetables

For a short-term period market is best for perishable goods like fruits and vegetables that are needed in day-to-day life.

Question 62. Demand for a firm’s product when expressed as in percentage of an industry demand it signifies the firm.

1. Product share
2. Market share
3. Demand
4. Supply

Answer: 2. Market share

Demand for a firm’s product when expressed as in percentage of an industry demand it signifies the market share of the firm.

Question 63. Which of the following is true?

1. Perfect competition sells a heterogenous product
2. Oligopolistic incurs a good amount of selling cost.
3. Monopolist always earns super-normal profits.
4. Oligopolistic economies do not get a hike in their normal profit.

Answer: 2. Oligopolistic incurs a good amount of selling cost.

In an oligopolistic market, advertising & selling and have great importance. Therefore, oligopolistic incurs a good amount of selling cost.

Question 64. Which of the following is correct?

1. Total revenue is equal to price × Quantity
2. The sum of Average Revenue
3. The sum of Quantity sold X marginal revenue
4. All of the above

Answer: 1. Total revenue is equal to price x Quantity

The formula for the total revenue (TR) is

TR = P × Q, where P is price and Q is quantity sold.

Question 65. Who introduced the ‘time element’ in economics?

1. Adam Smith
2. Alfred Marshall
3. Robert Malthus
4. J. M. Keynes

Answer: Alfred Marshall

Alfred Marshall introduced the time element in economics. In the parts of very short period, short period, long period & very long period.

Question 66. Which of the following is not a characteristic of the market?

1. Advertisement and awareness
2. Buyer and seller
3. Bargaining power
4. Product or service

Answer: 1. Advertisement and awareness

The main characteristic of a market is the buyer and seller, they have bargaining power and they have products or services.

Question 67. In the initial stage, total revenue is increasing at a decreasing rate due to

1. Diminishing marginal revenue
2. Negative marginal revenue
3. Multi-level marginal revenue
4. None of the above

Answer: 1. Diminishing marginal revenue

TR increases as long as MR is positive and declines (has a negative slope) when MR is negative. TR curve initially increases at a diminishing rate due to diminishing MR and reaches a maximum and then it falls when MR becomes zero, the TR is maximum and the slope of TR is zero.

Question 68. When MR = MC the firm will incur

1. Maximum profits
2. Minimum profits
3. Maximum losses
4. Minimum losses

Answer: 1. Maximum profits

Profits are maximum when MR = MC and the MC curve cuts the MR curve from below.

Question 69. The price of goods expresses value.

1. Exchange
2. Cost
3. Demand
4. Fair

Answer: 1. Exchange

The price of Goods expresses its exchange value in the market.

Question 70. Which one of the following is not an element of the market?

1. Buyer
2. Service
3. Firm
4. Bargaining for Price

Answer: 3. Firm

The elements of the market are buyers and sellers, goods or services, bargaining for price, knowledge about the market conditions, and a price for goods or services at a given time.

Question 71. Based on the nature of the transaction, a market can be classified into which of the following?

1. Cash and Forward Market
2. National and International Market
3. Organized and Unorganized Market
4. Retail and Wholesale Market.

Answer: 1. Cash and Forward Market

Based on the nature of transactions, the market has been classified into cash and forward market.

Nature And Scope Of Business Economics Multiple Choice Questions

Question 1. Economics is the study of mankind in the ordinary business of life was given by

1. Adam Smith
2. Lord Robbins
3. Alfred Marshall
4. Samuelson

Answer: 3. Alfred Marshall

‘Economics is a study of mankind in the ordinary business of life’ is the welfare definition given by Alfred Marshal

Question  2. The branch of economic theory that deals with the problem of allocation of resources is

1. Microeconomics
2. Macroeconomics
3. Econometrics
4. None of these

Answer: 1. Microeconomics

The study of microeconomics deals with how a producer allocates his resources and fixes the price of his product for the optimum utilization of resources

Question 3. Capitalistic Economy is used as the principal means of allocating resources

1. Demand
2. Supply
3. Price
4. All of the above

Answer:  3. Price

A capitalistic economy is characterized by the absence of state  intervention This economy uses a price mechanism (forces of demand and supply) to solve their basic economic problems Demand and supply both depend upon price and therefore capitalistic economy uses price as the principal means of allocating resources

Question 4. A study of how an increase in the corporate income tax rate will affect the natural unemployment rate is an example of

1. Macroeconomics
2. Descriptive Economics
3. Microeconomics
4. Normative Economies

Answer: 1. Macroeconomics

Macroeconomics studies the economy as a whole Therefore increase in Corporate income tax rate and its effect on  unemployment is at the macro level

Question 5. In which type of economy do consumers and producers make their choices based on the market forces of demand and supply? 

1. Open Economy
2. Controlled Economy
3. Command Economy
4. Market Economy

Answer: 4. Market Economy

In a capitalistic economy, producers make their choices based on market forces of demand and supply The capitalist economy works under the price mechanism ie prices are determined by the free interplay of demand and supply forces A capitalist economy is also known as Market Economy
 
Question 6. Under a free economy, prices are

1. Regulated
2. Determined through a free interplay of demand and supply
3. Partly regulated
4. None of these

Answer:  2. Determined through a free interplay of demand and supply

Under the free economy (capitalist economy) prices are determined by the price or the market mechanism ie there is no authority to determine prices but they are decided by forces of demand and supply

Question 7. Which of the following falls under microeconomics? – –

1. National income
2. General price level
3. Factor pricing
4. National saving and investment –

Answer: 3. Factor pricing

Microeconomics studies the economic behavior of individual economic units Factor pricing is pricing of every factor and hence is a micro concept
 
Question 8. In a free-market economy when consumers increase their purchase of goods and the level of ___________ exceeds _____________  then prices tend to rise

1. Demand, Supply
2. Supply, Demand
3. Prices, Demand
4. Profits, Supply

Answer: 1. Demand, Supply

In a market (capitalist) economy prices are determined by market forces of demand and supply When the demand for goods increases the supply remains the same the prices of goods rise

Question 9. Linder the Inductive method the logic proceeds from

1. General to particulars
2. Particular to general
3. Both 1 and 2
4. None

Answer: 2. Particular to general

Under the inductive method conclusions are drawn based on the collection and analysis of facts relevant to the inquiry The logic proceeds from particular to general The generalizations are based on the observations of individual examples

Question 10. According to Robbins‘means’are

1. Scarce
2. Unlimited
3. Undefined
4. All of these

Answer: 1. Scarce

Robbins in his definition of scarcity explains that there are unlimited ends (wants) and limited means (resources) Resources are limited in nature and have alternative uses
 
Question 11. Economics is the study of

1. How society manages its unlimited resources
2. How to reduce our wants until we are satisfied
3. How society manages its scarce resources
4. How to fully satisfy our unlimited wants

Answer: 3. How society manages its scarce resources

Society has scarce resources and unlimited wants Economics is the study of how to manage scarce resources to fulfill unlimited ends Economics deals with how to make optimum utilization of scarce resources
 
Question 12. A mixed economy means 

1. Co-existence of small and large industries
2. Promoting both agriculture and industries in the economy
3. Co-existence of rich and poor
4. Co-existence of public and private sectors

Answer: 4.  Co-existence of rich and poor

A mixed economy

A mixed economy is characterized by the presence of both the private and the public sectors Under this economy prices are determined both by planning authority and market forces

Question 13. Who defines Economics in terms of Dynamic Growth and Development?

1. Robbins
2. Paul A Samuelson
3. Adam Smith
4. None

Answer: 2. Paul A Samuelson

Economics in terms of Dynamic Growth and Development was given by Paul A Samuelson Who states that “Economics is the study of how men and society choose with or without the use of money to enjoy scarce productive resources which could have alternative uses to produce various commodities over time and to distribute them for consumption now and in the future of amongst various people and groups of society

Question 14. A Free Market- economy solves its Central Problems through

1. Planning authority
2. Market mechanism
3. Both
4. None

Answer: 2. Market mechanism

A free market economy also known as a capitalist economy has no central planning authority to decide what how and for whom to produce Such an economy uses the impersonal market forces of demand and supply or the price mechanism to solve its central problems
 
Question 15. The normative aspect of Economics is given by 

1. Marshall
2. Robbins
3. Adam Smith
4. Samuelson

Answer: 1. Marshall

The normative aspect is concerned with welfare propositions Such an aspect of economics is prescriptive and describes ‘what should be the thing’ Example questions like what should be the level of national income how the fruits of national product be distributed among people An aspect of economics given by ‘Alfred Marshall’

Question 16. Which one is not the characteristic of a capitalistic economy?

1. Profit motive
2. Income inequality
3. Free Employment
4. Collective ownership

Answer: 4. Collective ownership

The characteristic of collective ownership does not belong to a capitalistic economy The characteristic of collective ownership is that of a socialistic economy where the entire control is of the Government

Question 17. Mixed economy means

1. All economic decisions are taken by the Central Authority
2. All economic decisions are taken by private entrepreneurs
3. Economic decisions are partly taken by the state and partly by private entrepreneurs
4. None of these

Answer: 3. Economic decisions are partly taken by the state and partly by private entrepreneurs

A mixed economy is characterised by the presence of both private and public enterprises In this economy the government as well as private enterprises exist and hence economic decisions are taken by the government and private enterprises both

Question 18. A capitalistic Economy is used as the principal means of allocating resources

1. Demand
2. Supply
3. Price
4. All of the above

Answer:  3. Price
 
Question 19. Economic Problem arises when 

1. Wants are unlimited
2. Resources are limited
3. Alternative uses of resources
4. All of the above

Answer: 4 . All of the above

Economic problem arises when wants are unlimited resources are limited and resources have alternative uses These reasons give rise to basic economic problems of “what to produce” “Flow to produce” and “For whom to produce”
 
Question 20. Microeconomics is also known as

1. Public economics
2. Price Theory
3. Income Theory
4. Demand theory

Answer: 2. Price Theory

Microeconomics is also known as Price Theory.
 
Question 21. A developed economy uses techniques in the production of labour

1. Labor-intensive
2. Capital intensive
3. Home-based
4. Traditional

Answer: 2.  Capital intensive

Developed Economies have more technology so they use capital-intensive techniques in production to minimize the cost of production

Question 22. Which one is the feature of Marshall’s definition?

1. Limited ends
2. Scarce means
3. Study of wealth as well as the study of man
4. Study of allocation of resources

Answer: 3. Study of wealth as well as the study of man

Alfred Marshall pointed out that economics is on the one side a study of wealth and on the other and more important side a part of a study of man
 
Question 23. Which one in the following is not correct

1. There are limited wants
2. Means are scarce
3. Resources have alternative uses
4. Economics is science

Answer: 1. There are limited wants

According to two fundamental facts human beings have unlimited wants and the means of satisfying the wants are scarce

Question 24. Micro Economics is concerned with

1. Consumer Behaviour
2. Product pricing
3. Factor Pricing
4. All of the above

Answer: 4. All of the above

Micro-economics is concerned with:

1. Product pricing
2. Consumer behaviour
3. Factor pricing
4. Economic conditions of a section of the people
5. Study of firms
6. Location of an industry

Question 25. Who gave the positive aspect of science?  

1.  Alfred Marshall
2. AC Pigou
3. Adam Smith
4. Robbins

Answer: 4. Robbins

A positive or pure science analyses cause and effect relationship between variables but it does not pass value judgments This positive aspect of science was emphasized by Professor Robbins
 
Question 26. A mixed economy means

1. Coexistence of both private and public sector
2. Coexistence of poor and rich people
3. Both 1 and 2
4. None

Answer: 1. Coexistence of both private and public sector

A mixed economy is an economy that includes the best features of both the controlled economy and the market economy The most important feature of a mixed economy is the co-existence of both private and public enterprises

Question 27. Which of these is a part of microeconomics?

1. Factor pricing
2. National Income
3. Balance of payment
4. None

Answer: 1. Factor pricing

Microeconomics is the study of the economic behaviour of an individual firm or industry in the national economy It is the study of a particular unit Factor pricing relates to the pricing Of individual factors and hence is a subject of microeconomics

Question 28. Which of these is an example of macroeconomics 

1. The problem of unemployment in India
2. The rising price level in the country
3. Increase in disparities of income
4. All of the above

Answer: 4. All of the above

In macroeconomics, we study the economic behavior of large aggregates such as overall conditions of the economy total production etc Therefore all these are subject of macroeconomics

Question 29. In a capitalist economy, the allocation of resources is performed by

1. Producers
2. Government
3. Planners
4. Price mechanism

Answer: 4. Price mechanism

A capitalistic economy has no central planning authority to decide what how and for whom to produce Thus the allocation of resources is performed  by the market forces of demand and supply known as the price mechanism

Question 30. Which of the following statements is incorrect?

1. Alfred Marshall propagated the wealth definition of Economics
2. L Robbins introduced the “Scarcity” definition of Economics
3. Samuelson emphasized the “growth” aspect of Economics
4. AC Pigou believed in the “welfare” aspect of Economics

Answer: 1. Alfred Marshall propagated the wealth definition of Economics

The ‘wealth’ definition of Economics was given by Adam Smith and ‘ JB Say“An inquiry into the nature and causes of the wealth of the nations” – Adam Smith

“Science which deals with wealth” – JB Say

Question 31. Inequalities of income do not perpetuate in

1. Socialism
2. Mixed economy
3. Capitalism
4. None

Answer: 1. Socialism

The relative equality of income is an important feature of a socialistic economy Educational and other facilities are enjoyed more or less equally thus the basic causes of inequalities are removed

Question 32. Which of the following are the features of a mixed economy?

1. Planned economy
2. The dual system of pricing exists
3. Balanced regional development
4. All of the above

Answer: 4. All of the above

An economy that incorporates the features of capitalism and socialism both the economies is called a mixed economy

It has the following features:

• A mixed economy is a planned economy where the government has a clear and definite economic plan
• In a mixed economy, the prices are determined both by price mechanism and central planning authority Hence a dual system of pricing exists
• There is a balanced regional development in a mixed economy as the public sector enterprises will be set up in backward areas for balanced development

Hence the answer will be all of these

Question 33. Normative Economics is based on

1. Ethical Considerations
2. Facts and Generalisation
3.  What is
4.  All of the above

Answer: 1. Ethical Considerations

Normative economics is concerned with welfare propositions It states “what should be the things” It does not deal with facts but involves value judgments The ethical aspect of economics is normative economics

Example:  What should be the wage rate level? This is a normative statement

Question 34. The dual system of pricing exists in

1. Free market economy
2. Socialistic economy
3. Mixed economy
4. None of the above

Answer: 3. Mixed economy

A mixed economy is a type of economy that combines the features of both capitalistic and socialistic economy In this economy the dual system of  pricing exists ie prices of essential commodities are determined by the government while the prices of other commodities are fixed by the price  mechanism (by the interaction of demand and supply

Question 35. In the Inductive method, logic proceeds from

1. General to Particular
2. Particular to General
3. Both 1 and 2
4. None of these

Answer: 2. Particular to General

Under the inductive method, conclusions are drawn based on the collection and analysis of facts relevant to the inquiry Here the logic proceeds  from particular to general This means generalizations are made based on facts collected

Question 36. In a capitalist economy allocation of resources is done by

1. Producers
2. Government
3. Planners
4. Price mechanism

Answer: 4. Price mechanism

In a capitalist economy there is no government intervention In this economy the resources are allocated based on the demand of the consumers Producers will produce those goods that are in demand without thinking about public welfare Hence this economy is guided by the price mechanism

Question 37. A Capitalist Economy follows the policy of

1. Laissez- faire
2. Regulated markets
3. Promoting public sector
4. None of the above

Answer: 1. Laissez- faire

One of the guiding principles of the capitalistic economy is that the economic system should be free from government interventions and be driven by  market forces Laissez-faire means allows to pass Thus the capitalistic economy follows the policy of laissez-faire
 
Question 38. ‘Economics is the science of choice-making implies

1. No choice is to be made
2. The choice to be made between alternative uses
3. The choice to be made between means and ends
4. None of the above

Answer:  2. The choice to be made between alternative uses

Robbins gave the following definition of economics “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses” Thus economics is a science of choice which is to be made between alternative uses

Question 39. Which of the following is a part of the subject matter of macroeconomics?

1. Study of firms
2. Aggregate profits of a firm
3. Market demand for a product
4. Net national product

Answer: 4. Net national product

In macroeconomics, we study the economic behavior of large aggregates such as overall conditions of the economy total production, etc Out of the given options only NNP studies the national income which is related to the entire economy
 
Question 40. A capitalist economy is by and large _____________________

1. A closed economy
2. A free market economy
3. A centrally controlled economy
4. An economy in which a government neither collects any taxes nor Incurs any expenditure

Answer: 2. A free market economy

A capitalist economy also known as- a market economy has no central planning authority to decide what how and for whom to produce Such an economy  uses the impersonal force of the market- demand and supply or the price mechanism to solve its central problems

Question 41. Deductive and Inductive methods are complementary to each other It is 1 correct

1. Absolutely Correct
2. Absolutely Incorrect
3. Partially incorrect
4. None of the above

Answer:  1. Absolutely correct

Deductive and inductive methods are not mutually exclusive and are used side by side in any scientific inquiry Conclusions drawn from the deductive  method of reasoning is verified by the inductive method of observing concrete facts of life Thus it can be said that Deductive and inductive methods  are complementary to each other is correct

Question 42. A free-market economy driving force is

1. Profit motive
2. The welfare of the people
3. Rising income and levels of living
4. None of the above

Answer: 1. Profit motive

A free market economy or a capitalist economy is one in which all the means of production are owned and controlled by private individuals for profit Thus the profit motive is the driving force of a free market economy

Question 43. “Economics is neutral between ends” The statement is given by

1. L Robbins
2. Mrs. Joan
3. Alfred Marshall
4. AC Pigou

Answer: 1. L Robbins

According to Prof Lionel Robbins, “economics is neutral between ends” Ends refer to wants Human wants are unlimited When one – want is satisfied  other wants crop up

Question 44. A system of economy in which all the means of production are owned and controlled by private individuals for profit is called

1. Socialist Economy
2. Capitalist Economy
3. Mixed Economy
4. All of the above

Answer: 2. Capitalist Economy

The capitalistic economic system is one in which all the means of production are owned and controlled by private individuals for profit In this system the government does not interfere in the management of economic affairs

Question 45. Where does the price mechanism exist?

1. Capitalist Economy
2. Socialist Economy
3. Beth types of economies
4. None of the above

Answer: 1. 1 Capitalist Economy

A capitalistic economy has no central planning authority to decide what how and for whom to produce This economy uses the impersonal forces of the market demand and supply or price mechanism to solve its central problems

Question 46. Economics which is concerned with welfare propositions is called

1. Socialistic economics
2. Capitalistic economics
3. Positive economics
4. Normative economics

Answer: 4. Normative economics

The normative aspect is concerned with welfare propositions It involves value judgements It is prescriptive in nature and describes ‘what should be the things’ Eg what should be the level of national income what should be the wage rate

Thus Normative economics is the correct option
 
Question 47. In which among the following systems the ‘right to property’ exists

1. Mixed economy
2. Capitalist economy
3. Socialist economy
4. Traditional economy

Answer: 2. Capitalist economy

Capitalism is an economic system in which all the -means of production are owned and controlled by private individuals for profit The right of private  property means that productive factors such as land factories machinery mines etc are under private ownership The owners of these factors are free  to use them in the manner they like

Question 48. Positive science only explains

1. What is?
2. What ought to be?
3. What is right or wrong
4. None of the above

Answer: 1. What is?

A positive or pure science analyses cause and effect relationship between variables but it does not pass value judgment It states  what is and not what ought to be

Question 49. Socialist Economy is also known as

1. Mixed Economy
2. Centrally Planned Economy
3. Capitalist Economy –
4. None of the above

Answer: 2. Centrally Planned Economy

A Socialist economy is also known as a centrally planned economy because there is a central authority to set and accomplish socioeconomic goals
 
Question 50. Which of the following is not a feature of a capitalist economy?

1. Right to private property
2. Restrictions on consumers right to choose
3. Profit motive
4. Freedom of enterprise

Answer: 2. Restrictions on consumers’ right to choose

The features of a capitalist economy are

• The right of private property
• Freedom of enterprise
• Freedom to choice by the consumers
• Profit motive
• Competition
• Inequalities of income
• Hence restrictions on consumers’ right to choose is not a feature of a capitalistic economy

Question 51. The term “Mixed Economy” denotes

1. Co-existence of both consumers and producers goods industries in the economy
2. Co-existence of both private and public sectors in the economy
3. Co-existence of both rural and urban sectors in the economy
4. Co-existence of both large and small industries in the economy

Answer: 2. Co-existence of both private and public sectors in the economy

The term “Mixed Economy” denotes the co-existence of both private & public sectors in the economy In fact in a mixed economy there are three sectors of industries

• Private sector
• Public sector
• Combined sector

Question 52. The most important function of an entrepreneur is to

1. Innovate
2. Bear the sense of responsibility
3. Finance
4. Earn profit

Answer: 1. Innovate

An entrepreneur is one of the factors of production He is the one who coordinates with other factors like land labor capital etc Various functions of entrepreneurs are decision-making managerial functions organizational functions etc while the most” important function of an entrepreneur is to innovate

Question 53. Under the Inductive method, logic proceeds from

1. General to particular
2. Positive to normative
3. Normative to positive
4. Particular to general

Answer: 4. Particular to general

Under the inductive method, conclusions are drawn based on the collection and analysis of facts relevant to the inquiry The logic in this case proceeds  from the particular to general

Question 54. The meaning of the time element in economics is

1. Calendar time
2. Clock time
3. Operational time in which supply adjusts with the market demand
4. None of the above

Answer: 3. Operational time in which supply adjusts with the market demand

Operational time in which supply adjusts with the market demand

Question 55. All wants of an individual are not of

1. Equal importance
2. Immediate importance
3. Fixed importance
4. All of the above

Answer:  1. Equal importance

All wants of individuals are not of equal importance as all cannot be fulfilled

Question 56. is another name of the production possibility curve

1. Indifference Curve
2. ISO-Product Curve
3. Transformation Curve
4. Diminishing Utility Curve

Answer: 3. Transformation Curve

PPC is also known as Production Possibility Curve Production Possibility Boundary Transformation Line/Curve

Question 57. Who is the author of “The Nature and Causes of Wealth of Nations”?

1. Karl Marx
2. Adam Smith
3. J B Say
4. A C Pigou

Answer: 2. Adam Smith

Science of wealth:

Although the activity of acquiring and increasing material wealth is as old as civilization a disciplined study of the wealth-producing activities commenced about 235 years back (in 1776) when Adam Smith the father of Economics published ‘The Nature and Causes of Wealth of Nations”

Question 58. Microeconomics does not study

1. Consumer behaviour
2. Factor pricing
3. General price level
4. Firms equilibrium

Answer: 3. General price level

Microeconomics is the study of particular firms particular households individual price wage income individual industries and particular commodities

• We mainly study the following
• Product Pricing
• Consumer Behaviour
• Factor Pricing
• Economic conditions of a section of the people
• Study of firms
• Location of industry

Question 59. Find out the correct statement

Higher prices lower the quality demanded of a product is a – normative statement

• Micro and macro-economics are interdependent
• In a capitalist economy, the economic problems are solved by the planning commission
• In the deductive method, the logic proceeds from the particular to the general

Answer: 2.  Micro and macro-economics are interdependent

Micro and macroeconomics are interdependent because they both play a vital and in most cases, they play complementary roles Ex.National income cannot grow unless the production in individual firms and factories rises

Question 60. Which of the following illustrates a decrease in unemployment using the PPF?

1. A movement down along the PPF
2. A rightward shift of the PPF
3. A movement from a point on the PPF to a point inside the PPF
4. A movement from a point inside the PPF to a point on the PPF

Answer: 4. A movement from a point inside the PPF to a point on the PPF

A movement of point inside the PPF to on the PPF indicates the actual growth in an economy and wherever there is a decrease in unemployment it shows that
an economy is making progress towards growth by optimizing its full resources

Question 61. Microeconomics is the study of

1. Individual parts of the economy
2. The economy as a whole
3. Choice making
4. Development of the economy

Answer: 1. Individual parts of the economy

The term microeconomics is derived from the Greek word micros meaning “small” In microeconomics we study the economic behaviour of an individual  firm or industry It is thus a study of a particular unit rather than all the units combined

Question 62. Freedom of choice is the advantage of

1. Socialism
2. Capitalism
3. Mixed Economy
4. Communism

Answer:  2. Capitalism

Freedom of choice is the advantage of capitalism

Question 63. The definition of economics given by Robbins does not deal with one of the following aspects Indicate that aspect

1. Scarce means
2. Limited ends
3. Alternative uses
4. Economics is a science

Answer: 2. Limited ends

The definition of economics given by Robbins does not deal with limited ends as in the definition he deals with unlimited ends

Question 64. An economic system in which all means of production are owned and controlled by private individuals for profit is called

1. Mixed Economy
2. Socialist Economy
3. Capitalist Economy
4. Developed Economy –

Answer: 3. Capitalist Economy

A capitalist economy is an economic system in which all means of production are owned and controlled by private individuals for profit

Question 65. In which of the following methods conclusions are drawn based on the collection and analysis of facts?

1. Deductive method
2. Scientific method
3. Inductive method
4. Experimental method

Answer:  3. Inductive method

Inductive Method Under this method conclusions are drawn based on the collection and analysis of facts relevant to the inquiry The logic in this case proceeds from particular to general The generalizations are based on observation of individual examples

Question 66. Which Economic System is described by Schumpeter as ‘capitalism in the oxygen tent’?

1. Laissez-Faire Economy
2. Command Economy
3. Mixed Economy
4. Agrarian Economy

Answer: 3. Mixed Economy

Mixed economy is described by Schumpeter as “Capitalism in the oxygen tent” According to him it is only a trick of the capitalists to cheat the working class by offering them some temporary advantages like social security upliftment of the depressed classes etc Thus option c is correct

Question 67. The production Possibility Curve (PPC) is also known as

1. Indifference Curve
2. Supply Curve
3. Transformation Curve
4. Demand Curve

Answer: 3. Transformation Curve

The production-possibility curve is also known as the transformation curve It is a graph that shows the different rates of production of two goods that an individual or group can efficiently produce with limited productive resources

Question 68. The Central problem in every economic society is

1. To ensure a minimum level of income for every individual
2. To allocate scarce resources in such a manner that society’s unlimited wants are satisfied in the best possible manner
3. To ensure that production occurs in the most efficient manner
4. To provide jobs to every job seeker

Answer: 2. To allocate scarce resources in such a manner that society’s unlimited wants are satisfied in the best possible manner.

Every economic system be it capitalist socialist or mixed has to deal with this central problem of scarcity of resources relative to wants for The central economic problem is further

Divided into four basic economic problems these are:

1. What to produce
2. How to produce
3. For whom to produce
4. What provisions (if any) are to be made for economic growth?

Question 69. The Socialist Economy was propounded by

1. Karl Marx
2. Samuelson
3. AC Pigou
4. Adam Smith (1 mark)

Answer: 1.  Karl Marx

Karl Marx gave the theory of socialist economy

Question 70. The concept of Business Economics was given by

1. Joel Dean
2. Alfred Marshall
3. Adam Smith
4. L Robbins

Answer: 1. Joel Dean

The concept of Business economics was given by Joel Dean

Question 71. Features of the book Wealth of Nations

1. It was the first book written on economics
2. It was created in 1776
3. It was also known as the ‘wealth of nations’
4. All of the above

Answer: 4. All of the above

Adam Smith was the father of Economics He wrote the book ‘the Nature and Causes of Wealth of Nations in 1776 This book was also known as ‘Wealth of  Nations’ He defined economics in ‘An Inquiry into the Nature and Causes of Wealth of Nations’

Question 72. In India, a Mixed Economy exists due to

1. Coexistence of public sector and private sector
2. Individual forces of demand and supply
3. Orders by government
4. None of these

Answer: 1. Coexistence of public sector and private sector

There are three types of economy These are

1. Capitalist economy (private enterprises)
2. Socialist economy (governed by government)
3. Mixed economy (public and private enterprises)

A mixed economy means a co-relation or co-existence of public and private sector

Question 73. Which economic system is described by Schumpeter as capitalism in the oxygen tent?

1. Laissez-faire Economy
2. Command Economy
3. Mixed Economy
4. Agrarian Economy

Answer: 3. Mixed Economy

A mixed economy is described by Schumpeter as ‘capitalism in an oxygen tent’ According to him it is only a trick of capitalism to cheat the working class by offering them some temporary advantages like social security upliftment of depressed classes etc

Question 74. A capitalistic Economy is used as the principal means of allocating resources

1. Demand
2. Supply
3. Price
4. All of the above

Answer: 3. Price

Price is the principal means of the economy while it is not so in a is characteristic is capitalist allocating resources in a capitalist socialist economy Price Mechanism economy

Question 75. Under the inductive method, the logic proceeds from

1. General to particular
2. Positive to narrative
3. Normative to positive
4. Particular to general

Answer: 4. Particular to general

The inductive Method is based on facts and in this method logic proceeds from? particular to general White deductive method is based on assumptions and in this logic proceeds from general to particular

Question 76. Human wants are in response to satisfy their wants.

1. Unlimited
2. Limited
3. Scarce
4. Multiple

Answer: 1. Unlimited

Human beings have unlimited wants and the means to satisfy these unlimited wants are relatively scarce’ from the subject matter of  Economics

Question 77. Price Mechanism is the main feature of which economy?

1. Capitalistic Economy
2. Mixed Economy
3. Socialist Economy
4. All of the above

Answer: 1. Capitalistic Economy

Capitalism is self-regulating and works automatically through the price mechanism

Question 78. Business Economics is also known as?

1. Applied Economics
2. Managerial Economics
3. Micro Economics
4. All of the above

Answer: 2. Managerial Economics

Business economics also referred to as managerial economics generally refers to the integration of economic theory with business practice

Question 79. A business economy involves the theory of Business economics with

1. Normative Economics
2. Business practices
3. Micro Economics
4. Macro Economics

Answer: 2. Business practices

Business economy Involves theory of business with business practices (application of theory)

Question 80. Which is not included in Economics?

1. Family Structure
2. Managerial Economics
3. Micro Economics
4. Macro Economics

Answer: 1. Family Structure

Family structure in no sense affects economics therefore it is not included in economics

Question 81. Business Economics involves the elements of

1. Micro Environment
2. Macro Environment
3. Both 1 and 2
4. None of the above

Answer: 3. Both 1 and 2

Business economics involves the economy as a whole and therefore elements of macroeconomics and microeconomics are included in it

Question 82. In which economy market and government both play an important role?

1. Mixed economy
2. Socialistic economy –
3. Capitalistic economy
4. Business Economy

Answer: 1. Mixed economy

The mixed economic system depends on the market and government for the allocation of resources every economy in the real world makes use of both market and government and therefo4. re is a mixed economy in its nature;

Question 83. Which factor is included in business Economics?

1. Business Economics is an art
2. Interdisciplinary in nature
3. Normative in nature
4. All of the above

Answer: 4. All of the above

Factors of business economics are:

• It is a science
• It is normative
• It is Interdisciplinary
• It is pragmatic in approach

Therefore Answer will be all of the above

Question 84. Which out of these are the features of capitalism?

1. Profit motive
2. Human welfare
3. Work through the price mechanism
4. All of These

Answer: (1) and (3)

Features of a capitalist economy:

1. Profit motive
2. Work through the price mechanism
3. A high degree of operative efficiency

Therefore human welfare is not a feature of the capitalist economy

Question 85. Business Economics is

1. Normative in nature
2. Interdisciplinary in nature
3. Both
4. None

Answer: 3. Both

Business Economics

The nature of business economics can be explained by the following points

• Business Economics is a science
• It is based on microeconomics and also incorporates the elements of macroeconomics
• It is normative ie it involves value judgments ie it also deals with ‘what should be’
• Interdisciplinary in nature ie it incorporates tools from other disciplines including Mathematics Operational Research Finance Marketing etc

Question 86. Socialism ensures

• Rapid growth and balanced development
• Right to work
• Incentives for efficient economic decisions
• Both 1 and 2

Answer:  4. Both 1 and 2

• In a socialist economy production and distribution of goods are aimed at maximising the welfare of the community as a whole
• It ensures rapid and balanced economic development as the central planning authority efficiently coordinates all resources according to  predetermined priorities
• It also ensures the right to work and a minimum standard of living to all people However no importance is given to personal efficiency  and  productivity

Question 87. Macroeconomics includes

1. Product pricing
2. Consumer behavior
3. External value of money
4. Location of industry

Answer: 3. External value of money

Macroeconomics is the study of the overall phenomena or the economy as a whole rather than its parts It includes

• National income and national output
• General price level and interest rates ”
• Balance of trade and balance of payment
• The overall level of savings and investment
• The level of employment and rate of economic growth
• The external value of the currency

Question 88. Exploitation and inequality will be more in

1. Socialism
2. Capitalism
3. Mixed
4. All of the above

Answer: 2. Capitalism

• In a capitalist economy, all means of production are owned and controlled by private individuals for profit
• There is vast economic inequality and social injustice which reduces the aggregate economic welfare of society as a whole
• In a socialist economy there is an equitable distribution of wealth and equal opportunities for maintaining economic and social justice In a mixed economy there is the co-existence of both the public and private sectors which prevents exploitation and inequality Thus among the three inequalities and exploitations are the characteristics of capitalism-

Question 89. Shyam: This year due to heavy rainfall my onion crop was damaged

Krishna: Climates affect crop yields Some years are bad others are good

Hari:  Don’t worry – The price increase will compensate for the fall in quantity supplied

Radhe: The Government ought to guarantee that our income will not fall

In this conversation, the normative statement is made by

1. Shyam
2. Krishna
3. Hari
4. Radhe

Answer: 4.  Radhe

A normative statement involves value judgements and suggests what ought to be or what should be a particular course of action under given circumstances Statements made by

Shyam Krishna and Hari are positive as they merely show cause-and-effect relationships and do not involve value judgment However Radhe’s statement shows a particular course of action should be taken by stating that the government ought to guarantee that
income will not fall

Question 90. Which of the following is correct?

1. 49% FDI is allowed in defense production
2. 49% FDI is allowed in private-sector banking
3. 74% FDI is now allowed in multi-brand retail
4. 100% FDI is allowed in insurance

Answer: 2. 49% FDI is allowed in private-sector banking

49% FDI is allowed in private-sector banking

Question 91. A capitalist economy consists of

1. Central planning authority
2. A mechanism to decide what how and for whom to produce
3. Both 1 and 2
4. None of the above

Answer: 2. A mechanism to decide what how and for whom to produce

A capitalist economy does not have a central planning authority to decide what how and for whom to produce It uses the impersonal forces of the market
demand and supply or the price mechanism to solve its central problems

Question 92. As per the World Bank’s International Debt Statistics 2017, India continues to be amongst the _______________________ countries

1. More debt
2. Less debt
3. More vulnerable
4. Less Vulnerable

Answer: 4. Less Vulnerable

A normative statement involves value judgments and suggests what ought to be or what should be a particular course of action under given circumstances Statements made by Shyam Krishna and Hari are positive as they merely show cause-and-effect relationships and do not involve value judgment However Radhe’s statement shows a particular course of action should be taken by stating that the government ought to guarantee that income will not fall

Question 95. Due to the recession, the employment rate and output

1. Rises ; rises
2. Falls; falls
3. Rises ; falls
4. Falls ; rises

Answer: 2. Falls; falls

During the contraction or recession phase of the business cycle there is a fall in levels of investment and employment The decrease in demand pulls down prices investors’ confidence is at its lowest Employment rate falls and so is the output

Question 96. Freedom of choice is the advantage of

1. Socialism
2. Capitalist-
3. Mixed economy
4. None of the above

Answer: 2. Capitalist

In a Capitalist economy, consumers benefit due to competitive forces a variety of good quality products, and affordable prices This not only ensures freedom of choice but also maximum satisfaction to the consumers

Question 97. Refers to the work area where surplus manpower is employed out of which some individuals have zero or almost zero marginal productivity such that if they are removed the total level of output remains unchanged

1. Voluntary
2. Disguised
3. Structural
4. Technological

Answer:  2. Disguised

Disguised unemployment A kind of unemployment where more people are engaged in work than required Disguised refers to the work area where surplus manpower is employed out of which some individuals have zero or almost zero marginal productivity such that if they are removed the total level of output remains unchanged

Question 98. Socialist economy is ____________________________

1. Self- regulation
2. Profit Oriented
3. Command economy
4. Allocation of resources as per market requirements

Answer: 3. Command economy

A socialist economy is also called a “Command Economy” or “Centrally Planned Economy” This economy will not provide incentives to hard work in the form of profit Here resources are allocated according to the commands of the central planning authority rather than market requirements

Question 99. A study of have increase in the corporate tax rate will affect national

1. Unemployment rate is
2. Macroeconomics
3. Descriptive economics
4. Microeconomics
5. Normative economics

Answer: 1. Unemployment rate is

Macroeconomics is the study of the overall economic phenomena or the economy as a whole rather than its parts Therefore a study of have increase in the corporate tax rate will affect the national unemployment rate is of Macro environment

Question 100. A capitalist economy is used as a principal means of allocating resources

1. Demand
2. Supply
3. Efficiency
4. Price

Answer:  1. Demand

A capitalistic economy uses price as a principal means of allocating resources It is the economic system in which all the resources are owned and  controlled by private individuals for

Question 101. In a market economy, all assets are held by

1. Investors
2. Privately
3. Government
4. Jointly by government

Answer: 2. Privately

In the market, all assets are held by private owners as they fix their prices and sell the goods at their own fixed price So all the  assets are held by private owners in the market

Question 102. The branch of economic theory that deals with the problem of the allocation of resources

1. Microeconomics
2. Macroeconomics
3. Econometrics
4. None

Answer: 1.  Microeconomic

The branch of economic theory that deals with the problem of allocating resources

Question 103. Larger production of ______________________________ goods would lead to higher production in the Future

1. Consumer goods
2. Capital goods
3. Agricultural goods
4. Public goods

Answer: 2.  Capital goods

Question 104. Which of the following is not within the scope of business economics?

1. Capital budgeting
2. Risk analysis
3. Business cycle
4. Accounting Standards

Answer: 4. Accounting Standards

Business economics may be defined as the use of economic analysis to make business decisions involving the best use of..an organization’s scarce resources. It involves linear programming, regression analysis, capital budgeting, break-even analysis and cost analysis.

Accounting Standards is not within the scope of business economics.

Question 105. Which is the first book of Economics named as

1. The Wealth of Nations
2. Economics
3. Nations of Wealth
4. Political Economy

Answer:  1. The Wealth of Nations

The term Economics owes its origin to the Greek word ‘Oikonomia’ which means household’. Till the 19th century, economics was known as ‘Political Economy’. The book named ‘An inquiry into the

Nature and Causes of the Wealth of Nations (1776) usually abbreviated as The Wealth of Nations by Adam Smith is considered as the first modern work of Economics.

Question 106. Which type of scarcity is referred to in economics

1. Relative scarcity
2. Absolute scarcity
3. Both (1) and (2)
4. None

Answer:  1. Relative scarcity

The scarcity in economics is referred as relative scarcity. As the resources are limited and these resources have alternative uses and wants of people are unlimited. Therefore, all wants cannot be satisfied.

Financial resources can be used for many purposes. If the resources were unlimited, people would be able to satisfy all their wants and there would be no economic problem. Alternatively, if a resource has only a single use, then all economic problems would not arise.

Question 107. Consumer sovereignty is which of the following characteristics?

1. Capitalist economy
2. Mixed economy
3. Socialist economy
4. Democracy

Answer: 1. Capitalist economy

Consumer Sovereignty is the characteristics of a capitalist economy which states that consumer is the king under capitalism. Consumer sovereignty means that buyers ultimately determine which goods and services will be produced and in what quantities. Consumer have unbridled freedom to choose the goods and services which they would consume. In other words, based on the purchases they make, consumers decide how the economy’s limited resources are allocated.

Question 108. Who defines Economics in terms of Dynamic growth and development?

1. Robbins
2. Paul A Samuelson
3. Adam Smith
4. None

Answer:  2. Paul A Samuelson

Economics in terms of Dynamic Growth and Development was given by Paul A. Samuelson. Who states that “Economics is the study of how men and society choose, with or without the use of money to enjoy scarce productive resources which could have alternative uses, to produce various commodities over time and to distribute them for consumption now and in the future of amongst various people and groups of society

Question 109 ____________ Economics explain economic phenomena according to their cause and effects

1. Normative
2. Empirical
3. Positive
4. Applied

Answer: 3. Positive

A positive or pure science analyses cause and effect relationship between variables but it does not pass value judgments

Question 110. The study of the behavior of different individual organizations within an economic system is known as

1. Micro Economics
2. Macro Economics
3. Welfare Economics
4. None

Answer: 1. Micro Economics

Microeconomics is the study of the economic behavior of an individual firm or industry in the national economy it is the study of a particular unit

Question 111. The nature of Business economics is

1. Positive in nature
2. Pragmatic
3. Pure science-
4. Independent

Answer: 2. Pragmatic

Micro – Economics is abstract and purely theoretical and  analyses economic phenomena under unrealistic assumptions In contrast Business Economics is pragmatic in its approach as it tackles practical problems which the firms face in the real world

Question 112. Economics is a term for Dynamic Growth and development defined by

1. Alfred Marshall
2. Adam Smith
3. Robbins
4. Paul A Samuelson

Answer: 4. Paul A Samuelson

The term Dynamic Growth and development is defined by the famous author Mr Paul A Samuelson

Question 113. A socialistic economy is also called as

1. Profit oriented economy
2. Self-regulatory economy –
3. Centrally planned economy
4. Unorganized economy

Answer:  3. Centrally planned economy

A socialist economy is also called as “Command Economy” or a “Centrally Planned Econdmy” Here the resources are allocated according to the commands  of a central planning authority and therefore market forces have no role in the allocation of resources

Question 114. In a capitalistic economy and will be more

1. Inequalities exploitation
2. Exploitation equalities
3. Equalities Nonexploitation
4. Non-exploitation inequalities

Answer: 1. Inequalities exploitation

Capitalism can also lead to inequality which may be seen as unfair For example a firm may develop monopoly power Therefore capitalists with access to private property can exploit – their monopoly power to  make a much higher profit than other people in society inheritance

Question 115. In which economy cost-benefit analysis is used to The fundamental questions of the economy?

1. Mixed economy
2. Socialistic economy
3. Capitalistic economy
4. Regulatory economy

Answer:  1. Mixed economy

In a mixed economy, all the central problems of an economy is solved keeping in mind the cost of the factors of production with economic gains and  social welfare

Question 116. A system of economy in which all the means of production are owned and controlled by private individuals for profits is called

1. Socialist economy
2. Capitalist economy
3. Mixed economy
4. All of these

Answer:  2. Capitalist economy

Capitalistic is an economic system in which all the means of production are owned and controlled by private individuals for profit The government do not interfere in the management of economic affairs under this system –

Question 117. In which economic system production and distribution of goods and services aimed at maximizing the welfare of the community as a whole?

1. Capitalistic economy
2. Normative
3. Mixed
4. Socialist economy

Answer: 4. Socialist economy

In a socialist economy production and distribution of goods are  aimed at maximising the welfare of the community as a whole It also ensures right to work and a minimum standard of living to all people However no importance is given to personal efficiency and productivity-

Question 118. Are responsible for all economic problems

1. Unlimited wants
2. Alternative resource
3. Scarcity of resource
4. Others

Answer: 3. Scarcity of resource

Scarcity of resources is responsible of all economic problems because if sufficient economic resources are available then all problems will be automatically solve

Question 119. The capitalist system offers incentives for

1. Efficient business decisions
2. Efficient government decisions
3. Efficient non-government decisions
4. Efficient economic decisions

Answer: 4. Efficient economic decisions

Efficient economic decisions the capitalist system offers incentives for efficient economic decisions

Question 120. Macro-economic is also called economics

1. Applied
2. Aggregate
3. Micro
4. Experimental

Answer: 2. Aggregate

Aggregate, A macro economy is also called as Aggregate economy

Question 121. The book “Wealth of Nations” was written by

1. Alfred Marshall
2. John Robinson
3. Adam Smith
4. Robert Malthus

Answer: 3. Adam Smith

Adam Smith: The book Wealth of Nations was written by ‘Adam Smith’

Question 122. Rama:  My com harvest this year is poor.

Manoj: Don’t worry Price increase will compensate for the fall in quantity supplied

Meera: Climate affects crop yield Some years are bad others are good

Bharti:  The Government ought to guarantee that our income will not

1. Rama
2. Manoj
3. Meera
4. Bharathi

Answer: 4.  Bharathi

The normative statement is made by Bharti which means what ought to be.

Question 123. In a mixed economy, there are sectors of industries

1. Two
2. Three
3. Four
4. Five

Answer:  2. Three

Three In a mixed economy, there are three sectors of industries

Question 124. An economy exists because of two basic facts ie

1. Human wants are limited and resources are unlimited
2. Human wants are unlimited and resources are unlimited
3. Human wants are unlimited and resources are scare
4. Human wants are limited and resources are abundant

Answer: 3. Human wants are unlimited and resources are scare

• Human wants are unlimited and resources are scarce
• Two basic facts of economic
• Human wants are unlimited
• Resources are scarce

Question 125. An economy is called a capitalist economy when is given

1. Right to private property
2. Freedom of government interference «
3. Freedom of business choices
4. Discrimination

Answer: 1. Right to private property

Right to private property. An economy is called a capitalist economy when the right to private property is given

Question 126. The coexistence of the public and private sectors is the feature of

1. Capitalist Economy
2. Mixed Economy
3. Socialist Economy
4. Federal Economy

Answer: 2. Mixed Economy

Mixed economy: The coexistence of public and private sectors is a feature of a mixed  economy

Question 127. Which one of the areas comes under macro-economics?

1. Product pricing
2. Consumer behaviour
3. The general price level and interest rates
4. Economics conditions of a Section of people

Answer: 3. The general price level and interest rates

The general price level of interest rates the general price level of interest rate comes under macroeconomics

Question 128. Laissez-Faire economy is also known as

1. Capitalist economy
2. Socialist economy
3. Mixed economy
4. Communist economy

Answer: 1. Capitalist economy

A capitalist economy, a Laissez-faire economy is also called as capitalist economy

Question 129. In economics, we use the term scarcity to mean

1. Absolute scarcity and lack of resources in less developed countries
2. Relative scarcity ie scarcity about the wants of the society
3. Scarcity during times of business failure and natural calamities
4. Scarcity caused on account of excessive consumption by the rich

Answer: 2. Relative scarcity ie scarcity about the wants of the society

Relative scarcity ie scarcity about wants of the society In economics we use the term scarcity to mean relative scarcity which is the scarcity about wants of the society

Question 130. Microeconomics is also known as

1. Public economics
2. Price Theory
3. Income Theory
4. Demand theory

Answer: 2. Price Theory

Price Theory – Microeconomics is also known as price theory (self-explanatory)

Question 131. The Famous book abbreviated as “The Wealth of Nations” which is also considered the first modern work of Economics was written by

1. Frederic Engels
2. Karl Marx
3. David Ricardo
4. Adam Smith

Answer: 4. Adam Smith

‘The Wealth of Nations’ given by Adam Smith is considered the first modern work of economics

Question 132. The economic system in which the production and distribution of goods are aimed at maximizing the welfare of the community as a whole is known as

1. Capitalism
2. Socialism
3. Mixed economy
4. Communist economy

Answer: 2. Socialism

In a socialistic economy, there will be better utilization of resources and it ensures maximum production Equitable distribution of goods or wealth for  all helps to maintain economic and Social Welfare

Question 133. The Central Economics Problem does not deal with which of the following economic problems?

1. What to produce?
2. How to produce?
3. For whom to produce?
4. Where to produce?

Answer: 4. Where to produce?

The Central economic problem is further divided into four basic economic problems These are-

1. What to produce?
2. How to produce?
3. For whom to produce?
4. What provisions are to be made for economic growth?

Question 134. The study of the behavior of different individuals and organizations within an economic system is called

1. Industrial Economics
2. Macro Economics
3. Micro Economics
4. Welfare Economics

Answer: 3. Micro Economics

Microeconomics is the study of the behavior of different  individuals and organizations within the economic system In  other words microeconomics examines how individual units  make decisions as to how efficiently allocate their scarce  resources

Question 135. The concept of a socialist economy was propounded by

1. Karl Marx and Adam Smith
2. Frederic Engels and Adam Smith
3. Frederic Engels
4. Karl Marx and Frederic Engels

Answer:  4. Karl Marx and Frederic Engels

The concept of a socialist economy was propounded by Karl Marx and Frederic Engels In this economy material means of production ie Factories mines  capital etc are owned by the whole community represented by the state A socialist economy is also called a “Command economy” or “Centrally Planned Economy”

Question 136. Which of the following is not a study of Macroeconomics?

1. Consumer behaviour
2. National Income
3. General Price Level
4. Level of Employment

Answer: 1. Consumer behavior

Consumer behavior is not a study of macroeconomics Macroeconomics is the study of overall economic phenomena or economy as the whole rather than  its parts In macroeconomics we study the behavior of large economic aggregates such as overall levels of output

Question 137. Which one of the following is not the scope of business economics?

1. Cost Standard
2. Cost Analysis
3. Demand Analysis
4. Inventory Management

Answer: 1. Cost Standard

The scope of Business Economics is:

• Demand analysis
• Cost analysis
• Inventory management
• Market structure and pricing policies
• Resource allocation
• Profit analysis
• Risk and uncertainty analysis

Question 138. Which of the following statements is correct?

1. A mixed economy is not always a golden between capitalism and socialism
2. Socialistic economy is not always a golden path between mixed and capitalism
3. Capitalism economy is not always a golden path between mixed and socialism
4. A mixed economy is always a golden path between capitalism and socialism

Answer: 1. A Socialistic economy is not always a golden path between mixed and capitalism

A mixed economy is not always a ‘golden path’ between capitalism and socialism It suffers substantial uncertainty mixed economy is characterised by excessive control by the state resulting in reduced intensive constrained growth of the private sector and poor implementation and lack of efficiency.

Question 139. The central economic problem of an economy arises due to;

1. Scarcity of resources related to their wants
2. Co-existence of private and public sector
3. Govt interference in economic activities –
4. Federal structure of the constitution

Answer: 1. Scarcity of resources related to their wants

Central economic problem of an economy arises due to scarcity of resources related to their wants

Question 140. Business Economics is essentially a component of Applied Economics as it includes the application of selected quantitative techniques which technique is not included in it?

1. Regression analysis
2. Economic analysis
3. Capital budgeting
4. Linear programming

Answer: 2. Economic analysis

Business Economics is essentially a component of Applied Economics as it includes the application of selected quantitative techniques such as linear programming regression analysis capital  budgeting break-even analysis and cost analysis

Question 141. Business economics is pragmatic in its approach because?

1. It tackles practical problems that the firm faces in real world
2. It tackles practical problems that the firm faces due to WTO policies
3. U tackles practical problems which the firms face due to the lack of directors
4. Business economics is abstract and purely theoretical

Answer: 1. It tackles practical problems that the firm faces in real world

Business economics is pragmatic in its approach because Micro Economics is abstract and purely theoretical and analyzes economic phenomena under unrealistic assumptions and it tackles practical problems that the firm faces in the real world

Question 142. Socialist Economy is also known as

1. Private Economy
2. Consumer Economy –
3. Centrally Planned Economy
4. Mixed Economy

Answer: 3. Centrally Planned Economy

A socialist economic system can also be called a command economy centrally planned economy or controlled economy because the means of production and distribution are owned controlled and regulated by the public either through the state or through cooperatives

Question 143. The term socialist economy was coined by

1. Alfred Marshall
2. Albert Einstein
3. Joel Dean
4. Karl Marx and Friedrich Engels

Answer: 4. Karl Marx and Friedrich Engels

By the late 19th century after the work of Karl Marx and his collaborator Friedrich Engels socialism had come to signify opposition to capitalism and advocacy for a post-capitalist system based on some form of social ownership of the means of production

Question 144. The most important feature of a capitalist economy is ___________________________

1. State-run-economy
2. Competition
3. Inefficient allocation of resources
4. Socialism

Answer: 2. Competition

Competition Competition is the most important feature of the capitalist economy Competition brings out the best among buyers and sellers and results in the efficient use of resources

Question 145. Mr Rohit invited a consultant to know staff requirements consumer behaviour and product pricing The approach consultant is looking-

1. Micro Economics
2. Applied Economics
3. Macro Economics
4. Econometrics

Answer:  1. Micro Economics

Microeconomics is the study of what is likely to happen – (tendencies) when individuals make choices in response to changes in incentives prices resources and/or methods of production These groups create the supply and demand for  resources using money and interest rates as a pricing mechanism for coordination

Question 146. Which of the following is not included in Microeconomics?

1. Wages of workers in the steel industry
2. Location of a particular firm
3. General pricing level in the market
4. Price of a product

Answer:  3. General pricing level in the market

The general pricing level in the market is not included in microeconomics Business Economics makes use of microeconomic analysis such as demand analysis  and forecasting production and cost Analysis inventory management market structure and pricing policies resource allocation theory of capital and  investment decisions profit analysis and risk and uncertainty analysis

Question 147. A mixed economy refers to ________

1. All economic decisions are taken by the central authority
2. All economic decisions are taken by private entrepreneurs
3. Co-existence of both private and public sector
4. None of these

Answer: 3. Co-existence of both private and public sector

A mixed economy refers to the co-existence of both private and public sectors The mixed economic system depends on both markets  and governments for the allocation of resources every economy in the real world makes use of both markets and governments and therefore is a mixed economy in its nature

Question 148. Which of the following is not within the scope of Business Economics?

1. Capital Budgeting
2. Risk Analysis
3. Business cycle
4. Accounting Standards

Answer: 4. Accounting Standards

Accounting standards are not within the scope of business economics The scope of Business Economics is quite wide It covers most of the practical problems a manager or a firm faces There are two categories of business issues to which economic theories can be directly applied namely

Internal issues or operational issues (this can be solved using microeconomics) – External issues or environmental issues (this can be solved using macroeconomics)

Question 149. Which are the areas that come under Macroeconomics?

1. Demand for a firm’s product
2. General price level and interest rates
3. Location of Industry
4. Price of a product

Answer: 2. General price level and interest rates

A few areas that come under Macro Economics are

• National Income and National Output
• The general price level and interest rates
• Balance of trade and balance of payments ~
• The external value of the currency
• The overall level of savings and investment; and
• The level of employment and rate of economic growth

Question 150. Economics is

1. Driven by profit
2. Driven by sentiments
3. Driven by emotions
4. Driven by Altruism

Answer: 1. Driven by profit

Economics

In turn, production tends to increase to satisfy the demand since producers are driven by profit Hence economics is driven by profits

Question 151. Which of the following is a demerit of capitalism

1. There is the precedence of property rights over human rights
2. It functions in the domestic framework’
3. The high degree of operative efficiency
4. None of these

Answer: 1. There is the precedence of property rights over human rights

Private property rights are central to a capitalist economy its execution and its legal defenses Capitalism is built on the free exchange of goods and services between different parties and nobody can rightfully trade property they do not own.

Conversely, property rights provide a legal framework for prosecuting – aggression against non-voluntary means of acquiring resources; there is no need for capitalist trade in a society where people could simply take from others what they want by force or the threat of force

Question 152. The scarcity definition in economics in given by

1. Lipsey
2. Adam Smith
3. JB says
4. Robbins

Answer:  4. Robbins

The scarcity definition was given by Prof Lionel Robbins in his book ‘An Essay on the Nature and Significance of Economic Science1 published in 1932 He stated “Economics as the science which studies human behavior as a relationship between ends and scarce means which have alternate uses”

Question 153. Normative economics can be explained through

1. Fairness to tax
2. Incidence to tax
3. Effect of tax on incentive to work
4. None of these

Answer: 1. Fairness to tax

Normative economics can be explained through fairness to the tax

Normative economics (as opposed to positive economics) is a part of economics whose objective is fairness or what the outcome of the economy or goals of public policy ought to be Economists commonly prefer to distinguish normative economics (“what ought to be” in economic matters) from positive  economics (“what is”)

Question 154. Socialist Economy is also known as

1. Private Economy
2. Consumer Economy
3. Command Economy
4. Mixed Economy

Answer: 3. Command Economy

A Socialist economy is also known as a “command economy” or “centrally planned economy”

Question 155. Predominance of bureaucracy under which system?

1. Mixed Economy
2. Socialist Economy
3. Capital Economy –
4. None of the above

Answer:  2. Socialist Economy

A Socialist economy involves the predominance of bureaucracy resulting in inefficiency and delays

Question 156. Find the correct statement

1. A mixed economy is not a golden path between a socialist & capitalist economy
2. A Socialist economy is not a golden path between a mixed & capitalist economy
3. The capitalist economy is not a golden path between a socialist economy & mixed economy
4. None of the above

Answer: 1. A Mixed economy is not a golden path between a socialist & capitalist economy

A mixed economy is not always a golden path between a socialist and capitalist economy Sometimes it is very difficult to maintain a proper balance between the public and private sectors

Question 157. Microeconomics is also known as

1. Public economics
2. Price Theory
3. Income Theory
4. Demand theory

Answer: 2. Price Theory

Microeconomics

Price Theory: Microeconomics is also known as price theory (self-explanatory)

158. Normative science refers to

1. What to Produce
2. How to Produce
3. Whom to Produce
4. What should be

Answer: 4. What should be

Normative science is prescriptive It involves value judgments It is prescriptive in nature and suggests ‘what should be’ a particular course of action in different circumstances

Question 159. Business is Pragmatic in approach

1. True
2. False
3. None of the above
4. Uncertain

Answer:  1. True

Business economics is pragmatic in its approach as it tackles practical problems which the firms face in the real world

Question 160. Central problems of economics –

1. Scarcity of resources
2. Poverty
3. Unemployment
4. All of the above

Answer: 1. Scarcity of resources

The central problem of the economy is the scarcity of resources The resources are limited society has to decide the central problem of scarcity of resources

Question 161. Business economics being in approach -tackles  practical problems

1. Interdisciplinary
2. Normative
3. Positive
4. Pragmatic

Answer: 4. Pragmatic

Business economics is pragmatic in approaching practical problems and deals with them on a practical and theoretical basis.

Question 162. _________________________________economic system is self-regulating and run by invisible hands

1. Mixed
2. Socialistic
3. Capitalistic
4. Planned

Answer:  3. Capitalistic

Capitalism is a self-regulating economy and works automatically through price mechanism The “invisible hands” is a metaphor for how in a free market economy self-interested individuals operate through a system of mutual interdependence

Question 163. Indian economy is classified as

1. Mixed economy
2. Capitalist economy
3. Socialist economy
4. Free market economy

Answer: 1. Mixed economy

India has a mixed economy therefore public as well as private entities co-exist

Question 164. The basic problem of scarcity gives rise to

1. Technological problems
2. Social problems
3. Cultural problems
4. Economic problems

Answer: 4. Economic problems

The basic problem of scarcity gives rise to economic problems The basic problems of an economy are that resources available are scarce and our wants are unlimited Hence choice is made to allocate resources to alternative uses is such a way that maximum satisfaction can be achieved

Question 165. J Which of the following is NOT a basic problem of all economies?

1. Whether to produce more consumer goods or capital goods
2. Whether to lay emphasis or labour intensive techniques or no capital-intensive techniques
3. Whether to produce for rich people or poor people
4. Whether to accept direct investment in the economy

Answer: 4. Whether to accept direct investment in the economy

The baste problems of all economies are:

• What to produce to produce more of consumer goods or capital goods –
• How to produce-whether to employ more of labor-intensive or capital-intensive techniques
• For whom to produce – How the goods and services should be distributed among the members of society ie decision about shares of different  people in the national cake of goods and services
• What provision should be made for economic growth – How much saving and investment would be made for future progress?

Question 166. ______________________________ _ involves the predominance of bureaucracy resulting in Inefficiencies and delays

1. Socialistic economy
2. Capitalist economy
3. Mixed economy
4. Free market economy

Answer: 1. Socialistic economy

A Socialist economy involves the predominance of bureaucracy resulting in inefficiencies and delays _

Question 167. The capitalist system offers incentives for

1. Efficient business decisions
2. Efficient government decisions
3. Efficient non-governmental decisions
4. Efficient economic decisions

Answer: 4. Efficient economic decisions

One of the merits of the capitalist system is that it offers incentives for efficient economic decisions and their implementation

Question 168. Analysis of the impact of COVID-19 on the Indian Economy’ is a part of

1. Macroeconomics
2. Microeconomics
3. Economics slicing
4. Normative economics

Answer: 1. Macroeconomics

Macroeconomics focuses on the performance of economies- changes in economic output inflation interest and foreign exchange rates and the balance
of payments Poverty reduction social equity and sustainable growth are only possible with sound monetary and fiscal policies

The COVID-19 pandemic has caused direct impacts on income due to premature deaths workplace absenteeism and reduction in productivity and has created  a negative supply shock with manufacturing productive activity slowing down due to global ~ supply chain disruptions and closures of factories These consequences have impacted the Indian economy on a macro ‘ level

Question 169. The ‘communist manifesto’ related to the socialist economy propounded by Karl Marx and Frederic Engels was published in

1. 1950
2. 1848
3. 1849
4. 1951

Answer: 2. 1848

Karl Marx in 1848 and Frederic Engels published the ‘Communist Manifesto’ related to socialist economy

Question 170. ‘Consumer sovereignty’ is a feature of

1. Capitalist
2. Socialist
3. Mixed
4. Command

Answer: 1.  Capitalist

‘Consumer Sovereignty’ is the characteristic of a capitalist economy which states of that the consumer is the king under capitalism Consumer sovereignty means that buyers ultimately determine which goods and services will be produced and in what quantities

Consumers have unbridled freedom  to choose the goods and services which they would consume In other words based on the purchases they make Consumers decide how the economy’s limited resources are allocated

Question 171. Which one of the following is not a central problem of an economy?

1. What to produce?
2. How to produce?
3. When to produce?
4. For whom to produce?

Answer: 3. When to produce?

Every economic system be it capitalist socialist or mixed has to deal with this Central problem of scarcity of resources relative to the wants This is generally called ‘the Central economic problem’

These economic problems are further divided into four basic economic problems

These are

1. What to produce?
2. How to produce?
3. For whom to produce?
4. What provisions (if any) are to be made for economic growth? –

Question 172. The price of hot dogs increases by 22% and the quantity demanded falls by 25% This indicates that demand for hot dogs is

1. Elastic
2. Inelastic
3. Unitarily elastic
4. Perfectly elastic

Answer: 1. Elastic

Price elasticity of demand expresses the responsiveness of the quality of a good to a change in its price given the consumer’s income; his taste and prices of all other goods

Price elasticity = Ep = % change in quantity demand % change in price

Ep = \(\frac{25}{22}\)

= 1.13636

ie = elastic

Question 173. Which of the following is the central problem of the economy?

1. Scarcity of resources
2. Unemployment
3. Poverty
4. Inflation

Answer: 1. Scarcity of resources

Scarcity of Resources, The Central Problem of the Economy is a scarcity of resources and unlimited wants

Question 174. Economics is classified into

1. Normative and Positive
2. Micro and Macro
3. Internal and External
4. None of the above

Answer: 2. Micro and Macro

Micro and Macro

Economics as a whole is classified into Micro and Macro Economics ’

Question 175. Under which of the following economy the consumer have limited freedom of choice?

1.  Socialist
2. Mixed
3. Capitalist
4. Restricted

Answer: 1.  Socialist

Socialist, Since a Socialist Economy is a planned and enrolled economy so consumer have limited freedom of choice

Question 176. Which of the following is not the Subject matter of microeconomics?

1. Consumer Behaviour
2. Foreign Exchange Rate
3. Behaviour of Firms
4. Location of Industry

Answer: 2. Foreign Exchange Rate

Foreign Exchange Rate, Foreign Exchange Rate is based on Macro Economics

Question 177. Which of the following is one of the merits of socialism?

1. Importance is given to productivity
2. Importance is given to personal efficiency
3. Rapid Growth and Balanced Economic Development
4. Incentive for Economic Decision

Answer: 3. Rapid Growth and Balanced Economic Development

Rapid Growth and Balanced Economic Development

Socialist Economy is concerned with social welfare and equitable distribution of income which leads to rapid growth and balanced economic development

Question 178. Capitalist Economy solve their economic problems through which of the following?

1. Central Planning Authority
2. Price Mechanism
3. Administered Prices
4. Voting by Consumers

Answer: 2. Price Mechanism

Price Mechanism, The Price Mechanism helps in the allocation of resources under a Capitalist Economy

Question 179. An Economic system in which all means of production are owned and controlled by Private Individuals is called as?

1. Free Economy
2. Capitalist Economy
3. Normative Economy
4. Both 1 and 2

Answer: 4. Both 1 and 2

An economy is called a capitalist or free market economy or laissez-faire economy in which all means of production are owned and controlled by private individuals for profit since private property is the mainstay of capitalism and the profit motive is it observing force