1.
The production function expresses:
A) A financial relationship between cost and output
B) The physical relationship between inputs and output
C) The functional relationship between price and output
D) The demand for factors of production
Answer: B
2.
In the short run, at least one factor of production is:
A) Variable
B) Fixed
C) Unavailable
D) Indivisible
Answer: B
3.
Which of the following best defines the law of variable proportions?
A) All inputs change in the same proportion
B) At least one input is fixed and one is variable
C) Returns increase indefinitely with input usage
D) Output remains constant despite input change
Answer: B
4.
In the law of variable proportions, diminishing returns occur because:
A) Technology improves
B) Fixed factors are overused
C) Variable inputs become cheaper
D) Inputs become more productive
Answer: B
5.
The Marginal Rate of Technical Substitution (MRTS) measures:
A) How much capital substitutes for labour keeping cost constant
B) The rate at which one input substitutes another keeping output constant
C) The ratio of marginal products to total cost
D) The ratio of input prices
Answer: B
6.
Which of the following statements about isoquants is correct?
A) Isoquants slope upward to the right
B) Higher isoquants show lower levels of output
C) Isoquants are convex to the origin due to diminishing MRTS
D) Isoquants can intersect each other
Answer: C
7.
The slope of an iso-cost line is equal to:
A)
B)
C)
D)
Answer: A
8.
Producer’s equilibrium occurs where:
A) MRTS = price ratio of inputs
B) Isoquant intersects iso-cost
C) MP of each factor is equal
D) Total cost equals total revenue
Answer: A
9.
An isoquant is analogous to which concept in consumer theory?
A) Indifference Curve
B) Demand Curve
C) Budget Line
D) Utility Function
Answer: A
10.
When all inputs are doubled and output more than doubles, the firm experiences:
A) Constant returns to scale
B) Increasing returns to scale
C) Decreasing returns to scale
D) Diminishing marginal product
Answer: B
11.
Increasing returns to scale arise due to:
A) Managerial inefficiency
B) Indivisibility and specialization
C) Coordination problems
D) Use of inferior factors
Answer: B
12.
In the long run, all factors of production are:
A) Fixed
B) Variable
C) Partly fixed and partly variable
D) Non-existent
Answer: B
13.
The expansion path shows:
A) Output combinations at different prices
B) Least-cost combinations of inputs for different output levels
C) Demand curve of a firm
D) Isoquants for the same cost
Answer: B
14.
The shape of the short-run average cost curve is:
A) Downward sloping
B) U-shaped
C) Horizontal
D) Upward sloping
Answer: B
15.
The Law of Variable Proportions operates in:
A) Long run only
B) Short run only
C) Both short and long run
D) Very long period only
Answer: B
16.
When marginal cost (MC) is less than average cost (AC), then:
A) AC rises
B) AC falls
C) AC remains constant
D) Nothing can be inferred
Answer: B
17.
At the minimum point of AC curve, MC:
A) Equals AC
B) Lies above AC
C) Lies below AC
D) Is zero
Answer: A
18.
The L-shaped long-run average cost curve implies:
A) Costs rise continuously as output increases
B) Costs fall initially, then remain constant
C) Costs always decline due to technology
D) Costs increase after a certain point
Answer: B
19.
In the short run, Total Cost (TC) is equal to:
A)
B)
C)
D)
Answer: A
20.
The Modern Theory of Costs differs from the traditional theory mainly because:
A) It assumes rising marginal costs
B) It finds the LAC curve L-shaped rather than U-shaped
C) It ignores economies of scale
D) It assumes perfect competition
Answer: B
21.
Economies of scale refer to:
A) Increasing unit cost with expansion
B) Decreasing unit cost with expansion
C) Constant cost per unit
D) No change in efficiency
Answer: B
22.
Diseconomies of scale are primarily caused by:
A) Specialization
B) Efficient coordination
C) Management inefficiency and communication breakdown
D) Technological innovation
Answer: C
23.
If the marginal product of labour rises, the marginal cost of output:
A) Rises
B) Falls
C) Remains unchanged
D) Becomes infinite
Answer: B
24.
Which one of the following is an explicit cost?
A) Depreciation
B) Interest on owner’s capital
C) Wages paid to workers
D) Rent foregone on own land
Answer: C
25.
An isoquant map represents:
A) Cost combinations
B) Output levels with different input combinations
C) Prices of inputs
D) Firm’s demand curve
Answer: B
26.
When MC = AC, the AC curve is:
A) Rising
B) Falling
C) At its minimum
D) Horizontal
Answer: C
27.
Social cost includes:
A) Only private cost
B) Only external cost
C) Private cost plus external cost
D) None of these
Answer: C
28.
In the short run, fixed cost per unit:
A) Rises with output
B) Remains constant
C) Falls as output increases
D) First falls then rises
Answer: C
29.
If MC < AC, this implies:
A) Decreasing returns to scale
B) Increasing returns to scale
C) Constant returns to scale
D) None of these
Answer: B
30.
Which of the following relationships is correct?
A)
B)
C)
D)
Answer: A