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CBSE Questions for Class 11 Commerce Economics Production And Costs Quiz 2 - MCQExams.com
CBSE
Class 11 Commerce Economics
Production And Costs
Quiz 2
An iso-revenue line indicates ____________________.
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The various input combinations that yield equal revenues to the firm
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The various output combinations that yield higher revenue to the firm
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The various output combinations that yield lower revenue to the firm
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The various output combinations that yield equal revenue to the firm
Explanation
An iso-revenue line shows all possible combinations of two products which would yield the same total revenue.
It indicates various combinations of two products that can be produced by using the same amount of the variable input.
India opted for mixed economic system during the planning phase after independence.
What is/are the objective(s) of mixed economic system?
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Profit maximisation
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Social welfare
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Wealth maximisation
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Both A and B
Explanation
A mixed economic system is a system that combines aspects of both capitalism and socialism. A mixed economic system
protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims
. Hence, correct answer is option D.
When average cost increases, marginal cost is ____________.
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equal to average variable cost
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above average cost
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below average cost
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equal to average cost
Explanation
The marginal cost is the value of the additional cost that is added to the average thus if the marginal cost is higher than the average it tends to drag up the value of the average cost. Thus when the MC line is above the AC line, average cost is increasing.
Linear programming is used to solve ________________.
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The production problems
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The marketing problems
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The consumer problems
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All of these
Explanation
It is a mathematical technique that determines the best way to use available resources.
Linear programming help make decisions about the most efficient use of limited resources – like money, time, materials, and machinery.
Hence directly and indirectly it is related to production problems.
So a is the correct option.
Which of the following is not a production cost?
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Advertisement costs
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Material costs
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Wage costs
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Interest costs
Explanation
Advertisement is a selling cost and not a production cost as it is not directly related to the production of the good. Its is usually classified as a sunk cost or an indirect cost. All other costs are directly related to the production of a good.
Law of variable proportion has _________________.
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two stages
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three stages
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four stages
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five stages
Explanation
Law of Variable Proportions – in terms of TPP
has three clear
stages
:
I – TPP increasing at an increasing rate.
II –TPP increasing at a diminishing rate.
III–TPP declining.
Marginal cost is the addition to total cost caused by a small increment in ______________.
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profit
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output
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input
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all the above
Explanation
Marginal cost is defined as the the cost incurred by producing one more unit. It is profitable to continue production if MC $$\le$$ MR as this adds to total revenue.
Which of the following is referred to as envelope curve?
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LRAC curve
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SRAC curve
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Tost cost curve
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Marginal cost curve
Explanation
Long run average cost curve is also called envelope curve, because it envelopes all short run average cost curves.
LRAC curve is referred to as envelope curve because of the U shape of the long run average cost.
The long run average cost curve shows the __________________.
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Profit maximising level of output
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Maximisation of output
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Minimum cost of producing various levels of output when plant size can be varied
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Minimum cost of producing various levels of output within a particlar plant
Explanation
The
long-run average cost
(LRAC) curve shows the firm's lowest cost per unit at each level of output, assuming that all factors of production are variable. The costs it shows are therefore the lowest costs possible for each level of output.
Hence, option C is correct.
The LAC curves are ________________.
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U-shaped
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L-shaped
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Inverse J shaped
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Rectangular hyperbola
Explanation
In the long run the firm is likely to achieve economies of scale which will help the average cost to continue falling over a large range of output production. the firm will then go on to achieve constant returns to scale where it is likely to operate continuously, at it will be at its peak efficiency. This behavior is what gives the LAC its L shape.
If the price is above the minimum long - run average cost, the firms will be making ________________.
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Normal profits
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Supernormal profits
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Losses
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Any one of the above
Which curve is called the planning curve of a firm?
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LAC
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SAC
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TC
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TFC
Explanation
The LAC curve is the locus of all the points denoting the least cost for producing that level of output. It is a planing curve because on the basis of this the producer decides what the size of the plant should be in order to produce optimally. This optimal point is the minimum point of the long run average cost curve.
The LAC curve rises after a point because _____________.
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rising cost of the inputs
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difficulty of management
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increasing use of machinery
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both (a) and (b)
Explanation
After a time the firm faces diseconomies of scale, this is the situation where the firm faces rising average costs by increasing the scale of production further. The firm may grow too large and and may face management and disorganization problems.
Production function is a relationship of ______.
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land, labour
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capital
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entrepreneur
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all of the above
Explanation
The arguments of a production function are the inputs and outputs of the firm. Since all the options state factors of production, they represent inputs for the firm, which will be used to generate output and thus will be considered in the production function.
The LAC curve slopes downward as the scale of production is enlarged due to
_______.
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Specialisation of labour
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Specialised machinery
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Technological improvements
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All the above
Explanation
In the long run all factors are variable as there are no restrictions in access to finance. Thus they can afford to purchase specialized machinery which will allow the firm to reduce average cost. It is also possible for the state of technology to change due to innovation and investments in research and development. In the long run the firm can adjust the proportion of all its factors in order to to benefit from specialization of labor. All these factors will ensure increasing returns to scale and thus the LAC slopes downwards.
Returns to scale can be explained with the help of ___________.
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indifference curves
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demand curves
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cost curves
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iso product curves
Explanation
Returns to scale is at which an output increases in response to proportional increases in all the inputs. Returns of scale can be explained with the help of Iso product curves
Iso product curves is a contour line drawn through the set of points at which the same quantity of output is produced while changing the qualities of two or more inputs.
The cost incurred on advertising, publicity and salesmanship are known as _____________________.
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marginal cost
0%
selling cost
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salesmen cost
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opportunity cost
Explanation
Advertising, publicity and salesmanship are not costs incurred during the production process of a good and are usually
classified
as indirect cost or sunk costs.
The total output is at its maximum when marginal output is ___________.
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infinite
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one
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zero
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less than zero
Explanation
Marginal Product is the defined as the change in total product resulting from one additional unit of a variable factor. For output to be maximized the marginal product should be 0. As if marginal product $$\ge$$ 0 it is profitable to increase production. If marginal product $$\le$$ 0 it is profitable to decrease production.
The selling cost curve shows ___________________.
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The total cost per unit of selling any given amount of the product
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The marginal cost per unit of selling any given amount of the product
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The average cost per unit of selling any given amount of the product
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None of the above
Explanation
Selling costs refer to the expenditure incurred by the producer in order to promote the sale of the commodity.
The selling cost curve shows average cost per unit of selling any given amount of the product.
Hence c is the correct answer.
Cost incurred on the self-owned factors of production is ________.
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fixed cost
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variable cost
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explicit cost
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implicit cost
Explanation
The c
ost incurred on the self-owned factors of production is an implicit cost because it represents the
opportunity
cost of using these factors in the
production
process. Eg. an
entrepreneur
runs his business but knowing his talents a rival firm is willing to hire him and pay him a
salary
of Rs. 6,00,000 a year, this Rs.
6,00,000 acts as an implicit cost for the entrepreneur. Here the talent acts as a self owned factor of production.
The most common method used for pricing is _____________.
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Cost plus or full cost pricing
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Marginal cost pricing
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Going rate pricing
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Customary prices
Explanation
Cost Plus Pricing is a pricing method that attempts to ensure that costs are covered while providing a minimum acceptable rate of profit for the entrepreneur. It is calculated by adding a fixed mark-up to average cost of production.
Hence the most common method used for pricing is cost plus or full cost pricing.
Selling cost curve is _____________.
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L-shaped
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Inverse J-shaped
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Saucer shaped
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U-shaped
Explanation
Average selling costs have the effect of raising the average total cost of production. If the average selling costs are proportional to the product sold, the curve of average total costs will lie at
an equal distance above the average product cost curve
. This curve is U-shaped.
SC is the curve of selling costs. AQ is the average cost of selling OA units of the product, the total cost of selling it being OAQS. At the minimum point M of the SC curve, the cost per unit of selling OB units is BM which is less than any point in the QM portion of the SC curve. After this point, the average selling cost of ОС units is RC, the total cost of selling this quantity of the product being OCRT. Hence, correct answer is option D.
Maruti views Tata Motors as a prominent competitor but does not view Volvo as a competitor. This type of competition in the market is known as ______________.
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Product competition
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Production flow competition
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Cost Control competition
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Service competition
Explanation
Product competition means they are competing in similar products.
Maruti views Tata Motors as a prominent competitor but does not view Volvo as a competitor. This type of competition in the market is known as product competition.
They compete on the same product within one class of products.
Shoes, clothes and household goods are also product competitive goods.
Hence a is the correct answer.
In the short run, average cost and marginal cost curves intersect at the point where:
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AC is minimum
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AC is maximum
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MC is minimum
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None of the above
Explanation
When the MC curve is lower than the AC curve, ie the MC $$\le$$ AC the average cost will tend to fall as if you take a lower number and add it to the average and then take a new average, the new average has to be lower. At some point the MC will stop falling and begin rising to a point where it will meet the AC curve.
Thus only when the MC $$\ge$$
AC will the AC curve begin to rise as now a higher number is being added, and the new average must be higher. Thus the point that the MC meets the AC curve, has to be its minimum point.
The selling cost curve is an important contribution of _____________.
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Marshall
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Chamberlin
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Mrs. Joan Robinson
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Boulding
Production function explains the relationship between _________ and _______.
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initial inputs, ultimate output
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inputs, ultimate consumption
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output, consumption
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output, exports
Explanation
The arguments of a production function are the inputs required for production to take place and the outputs this generates. The most common form of the production function is the Cobb-Douglas function.
According to modern thinking, the law of diminishing returns applies to which of the following?
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Agriculture
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Industry
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Mining
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All fields of production
Explanation
The law of diminishing returns states that in a production process as one input variable increases is increased there will be a point at which marginal per unit output will decrease, holding all the other factors constant.
According to the modern thinking , the law of diminishing returns applies to all the fields of production.
The change in the total cost resulting from the production of one or more one less unit of output________________.
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Common cost
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Marginal costs
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Opportunity costs
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Explicit costs
Explanation
Average total and variable
costs
measure the average
costs of producing
some quantity of
output
. Marginal
cost
is somewhat different. Marginal
cost
is the additional
cost of producing
one more
unit of output
.
Wage
costs
. ... A rise in the
cost
of raw materials, e.g. oil, plastic, and metal – will increase the
cost
of firms. Nearly all firms will be affected by higher oil prices – which increase the
cost
of transport. Tax.
The
marginal cost of production
is the change in total
cost
that comes from making or
producing
one additional item. The purpose of analyzing
marginal cost
is to determine at what point an organization can achieve economies of scale.
The minimum Long Run Average Cost (LAC) can be determined on a
I) LAC curve for a normal production function
II) LAC curve for a linear production function
III) Planning curve
IV) Envelope curve
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I II III
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II III IV
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I III IV
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I II IV
Explanation
The long-run average cost curve can be determined with the normal production function.
The long-run average cost curve is also known as the planning curve because a firm plans to produce an output in the long run by choosing a plant on the long-run average cost curve corresponding to the output.
The long-run average cost is also called the envelopes curve because it envelops the short-run production points or the production levels.
Hence, option C is correct.
When average cost is falling, marginal cost curve:
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Is parallel to the average cost curve
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Coincides with average cost curve
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Is below the average cost curve
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Lies above the average cost curve
Explanation
When the marginal cost is less than average cost, average cost falls with an increase in output. Thus as long as the MC curve lies below the ATC curve, the ATC curve will slope downwards.
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