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CBSE Questions for Class 11 Commerce Economics Production And Costs Quiz 8 - MCQExams.com
CBSE
Class 11 Commerce Economics
Production And Costs
Quiz 8
Which of the following statements concerning the long-run average cost curve is incorrect?
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It represents the least cost combination for producing each level of output.
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It is derived from a series of short-run average cost curves.
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The short-run cost curve at the minimum point of the long-run average cost curve represents the least-cost plant size for all levels of output.
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As output increases, the amount of capital employed by the firm increases along the curve.
If marginal cost equals average total cost ___________.
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average total cost is falling
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average total cost is rising
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average total cost is maximized
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average total cost is minimized
Explanation
$$\Rightarrow$$ Both AC and MC are derived from total cost (TC). AC refers to TC per unit of output and MC refers to addition to TC when one more unit of output is produced.
$$\Rightarrow$$
Both AC and MC curves are U-shaped due to the Law of Variable Proportions. The relationship between the two can be better illustrated through diagram.
$$\Rightarrow$$
When MC is equal to AC, i.e. when MC and AC curves intersect each other at point A, AC is constant and at its minimum point.
$$\therefore$$ If marginal cost equals average total cost average total cost is minimized.
The law of variable proportion states that, if one factor is used more and more (variable), keeping the other factors constant, the total output will _____________.
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increase at an increasing rate.
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increase at an diminishing rate.
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decreases at an increasing rate in the beginning and then at a diminishing rate and eventually increase.
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increases at an increasing rate in the beginning and then at a diminishing rate and eventually decreases.
Which of the following is not an assumption of the law of variable proportions?
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Only one factor is variable
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Technique of production remains constant
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Proportion of factors of production remains constant
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Units of variable factor are homogeneous.
Explanation
The law of variable proportions is as follows, “If a producer increases the units of a variable factor while keeping other factors fixed, then initially the total product increases at an increasing rate, then it increases at a diminishing rate, and finally starts declining.”
As one input varies and all others remain constant, the factor ratio or the factor proportion varies.
Hence C is correct option.
Identify which statement is correct and which statement is incorrect.
W. The average product is at its maximum when marginal product is equal to average product.
X. The law of increasing returns to scale relates to the effect of changes in factor proportions.
Y. Economies of scale arise only because of indivisibilities of factor proportions.
Z. Internal economies of scale can accrue only to the exporting sector.
Select the correct answer from the options given below-
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W - Correct, X - Incorrect, Y - Incorrect, Z - Incorrect
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W - Correct, X - Correct, Y - Correct, Z - Correct
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W - Incorrect, X - Correct, Y - Correct, Z - Incorrect
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W - Correct, X - Incorrect, Y - Incorrect, Z - Correct
Which of the following assumption is applicable for the law of variable proportion?
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The state of technology is assumed to be given and unchanged
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There must be some inputs whose quantity is kept fixed.
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There are two factors of production.
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All of above
The law of variable proportions is drawn under all of the assumptions mentioned below except the assumption that _________.
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the technology is changing
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there must be some inputs whose quantity is kept fixed.
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we consider only physical inputs and not economically profitability in monetary terms.
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the technology is given and stable.
Explanation
The assumptions of law of variable proportion are-
1. The state of technology is given and remain unchanged
2. It is assume that some inputs are kept fixed while others are varied.
3. It is assume that technology is such that it is responsible to change the factor proportion.
4. It is assume that all the units of variable factors of hokogeneous and equally efficient.
Hence option A is correct.
In the long run _________.
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all inputs, such as labour, equipment and offices or factories can be varied, and so total variable cost is equal to total cost since fixed cost is equal to zero
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all inputs except labour can be varied, and so total variable cost remains unchanged but fixed cost is equal to zero
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all inputs, such as labour, equipment and offices or factories can be varied, and so average fixed cost is lower
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All inputs such as labour, equipment and offices or factories can be varied, and so total variable and fixed cost are lower
Explanation
In the long run all factors are varied. The proportion of inputs are scaled up or down in order to produce at the minimum efficiency scale (long run minimum average cost). Thus, in the long run the total cost is the total variable cost as there is no fixed cost involved.
Production Analysis is concerned with
________
of production.
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Financial aspects
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Physical aspects
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Either (A) or (B)
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Both (A) and (B)
Explanation
Production Analysis is concerned with physical aspects of production.
(i) It is purely technological relationship between quantities of input and quantities of output.
(ii) It represent the technology of an organization/sector of an economy.
The average cost of production is __________.
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the sum of the variable cost of production and the fixed cost of production, divided by the quantity produced
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the sum of the average variable cost of production and the average fixed cost of production
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the firm's total cost of production divided by the quantity produced
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all of the above
Explanation
A firms average cost can be calculated in 3 ways-
Average Cost ($$AC$$) =
$$\dfrac{TC}{Qty}$$, which can be also written as $$AC$$
= $$\dfrac{FC + VC}{Qty}$$
Also,
$$AC$$ = $$AFC +AVC$$
Use the following information to answer the question.
Hours of Labour
Total Output
Marginal Product
0
1
100
100
2
80
3
240
What is the Total Output when 2 hours of Labour are employed?
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80
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100
0%
180
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200
Which of the following would not cause an economy's production possibilities curve to shift to the right?
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The discovery of new superconductivity materials which makes manufacturing more efficient.
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A decrease in unemployment.
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Improvements in technology.
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Widespread application of irrigation to agricultural land.
Explanation
A decrease in unemployment will not result in growth of resources which would not cause an economy's production possibility curve to shift to the right.
If the total cost of a firm is Rs. 500 when output is zero, Rs. 1000 when output is 10 And Rs. 1,400 when output is 20, the fixed cost is equal to _________________.
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Rs. 1,000
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Rs. 900
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Rs. 500
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None of the above
Explanation
Fixed costs are indirect cost and are not directly proportional to the production process, instead these have to be paid even if production is zero. Thus in this example the fixed cost is Rs. 500 since it has to paid even when the output is zero.
Given the data in Table $$2$$, as one moves successively from point A to point B, C, D, E and F, the opportunity cost of eggs:
Table:
Production Possibilities (alternatives)
A
B
C
D
E
F
Hot Pockets
$$15$$
$$12$$
$$9$$
$$6$$
$$3$$
$$0$$
Eggs
$$0$$
$$6$$
$$11$$
$$15$$
$$18$$
$$20$$
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Increases as more eggs are produced
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Decreases as more eggs are produced
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Remains constant as more eggs are produced
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Cannot be measured
Production Possibilities (alternative)
A
B
C
D
E
F
Hot pockets
$$15$$
$$12$$
$$9$$
$$6$$
$$2$$
$$0$$
Eggs
$$0$$
$$6$$
$$11$$
$$15$$
$$18$$
$$20$$
Given the data in Table, as one moves successively from point A to points B, C, D, E and F the opportunity cost of Hot Pockets:
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Increases as more hot pockets are produced
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Decreases as more hot pockets are produced
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Remains constant as more hot pockets are produced
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Cannot be measured
Explanation
As one moves successively from point A to points B, C, D, E and F, the opportunity cost of hot pockets increases as more hot pockets are produced.
In general, most of the production functions measure _________________.
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productivity of factors of production.
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relation between the factors of production.
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economies of scale.
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relation between change in physical inputs and physical output
Law of
________
is applicable in the short-run.
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Variable Proportions
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Returns to Scale
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Both (a) and (b)
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Neither (a) nor (b)
Explanation
In the short run, when
one input is variable and all other inputs are fixed
, the firm's production function exhibits the law of variable proportions. This law shows the nature of rate of change in output due to a change in only one variable factor of production. Hence, correct answer is option A.
Identify the Independent Variable in all Cost Function from the following.
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Time Period under study
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Cost per unit
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Total Cost
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None of the above
Expansion of Scale of operation forms a part of ________ Cost Function.
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Long run
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Short run
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Fixed
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Both (A) and (C)
Explanation
Expansion of scale of operation means there is the long-run cost function
LAC curve (long-run average cost curve) is a U-shaped curve. This shape depends on the returns to scale. We know that, as a firm expands, the returns to scale increase.
Hence option a is correct.
Which of the following statements regarding the Long Run Cost Function is True?
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The Firm adjusts Factors of Production to meet the market demand
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Firm identify a combination that gives maximum output at the lowest Cost.
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Inputs are chosen for producing a desired level of output
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All the inputs in the long-run are fixed
Costs which involve payment made by the Entrepreneur to provide for other factors of production are called _______________.
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Explicit Cost
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Implicit Cost
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Variable Cost
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Fixed cost
Which of the following is an example of an Accounting Cost?
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Interest paid to Bank on short-term loan taken
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Cost incurred on the purchase of raw materials
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Wages paid to Labourers
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All the above
Explanation
$$\Rightarrow$$ Accounting cost is the recorded cost of an activity. An accounting cost is recorded in the ledgers of a business, so the cost appears in an entity's financial statements.
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It includes methods for recognizing, classifying, allocating, aggregating and reporting such costs and comparing them with standard costs.
$$\Rightarrow$$
Cost accounting information is also commonly used in financial accounting, but its primary function is for use by managers to facilitate their decision-making.
$$\therefore$$ Interest paid to Bank on short-term loan taken, Cost incurred on the purchase of raw materials, and Wages paid to Laborers are examples of Accounting cost.
A cost function determines the behaviour of Cost with respect to change in _____________.
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Output
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Input
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Technology
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Wages
The Functional Relationship between Output and the Long Run Cost of Production is known as ________________.
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Cost Function
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Long Run Cost Function
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Short Run Cost Function
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Output Function
Explanation
The long-run cost function
represents the average cost per unit of producing some goods.
Long-run total cost (LRTC) is the cost function that represents the total cost of production for all goods produced.
Hence the functional relationship between output and the long-run cost of production is known as the long-run cost function.
So option b is the correct answer.
________
are actually incurred and hence can be easily and objectively measured.
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Implicit Costs
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Explicit Costs
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Hidden Costs
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Opportunity Costs
Explanation
$$\Rightarrow$$ Implicit or implied costs are not clearly defined, identified, or reported as expenses. They often deal with intangibles and are described as opportunity costs—the value of the best alternative not accepted. An example of an implicit cost is time spent on one activity of a business that could better be spent on a different pursuit.
$$\Rightarrow$$
Explicit costs, involve tangible assets and monetary transactions and result in real business opportunities.Explicit costs are easy to identify, record, and audit because of their paper trail. Expenses relating to advertising, supplies, utilities, inventory, and purchased equipment are examples of explicit costs.
$$\Rightarrow$$
A hidden cost is a cost imposed by a transaction or activity that is not immediately apparent simply by looking at the trade occurring.
Expenses that are not normally included in the purchase price for a piece of equipment or machine e.g. maintenance, supplies, training, support and upgrades.
$$\Rightarrow$$
Opportunity costs represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.
$$\therefore$$ Explicit costs are actually incurred and hence can be easily and objectively measured.
In Economics, a place where Buyers and Sellers meet and bargain over a commodity for a price is called ________.
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Den
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Shop
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Market
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Exchange
Explanation
A market is a place where buyers and sellers can meet to facilitate the exchange or transaction of goods and services.
Hence market is the place where Buyers and Sellers meet and bargain over a commodity for a price.
Cost incurred in purchasing the Factor of Production is known as _________________.
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Accounting Cost
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Economic Cost
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Marginal Cost
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Implicit Cost
Which of the following statements is false?
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Economic Costs include the Opportunity Costs of the resources owned by the Firm
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Accounting Costs include only Explicit Costs
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Economic Profit will always be less than Accounting Profit if resources owned and used by the Firm have any Opportunity Costs
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Accounting Profit is equal to Total Revenue less Implicit Costs
If Total Product (TP) increases, Marginal Product (MP) will be -
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Positive
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Negative
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Zero
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Infinity
Explanation
When total product curve rises at an increasing rate, the marginal product of labor curve is positive and rising.
If the total product curve rises at a decreasing rate, the marginal product of labor curve is positive and falling.
Hence a is the correct answer.
If TP decreases, MP will be -
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Positive
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Negative
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Zero
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Infinity
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