Free Producer Behaviour 02 Practice Test - 11th Grade - Commerce
Question 1
The law of diminishing returns
is reflected in the negatively sloped portion of the marginal product curve
is the result of specialization and division of labor
is related to increasing coordination problems
None of the above are correct
SOLUTION
Solution : A and C
The law of diminishing returns is reflected in the negatively sloped portion of the marginal product curve
Question 2
The marginal revenue product of labor for a firm
will increase if the price of the firm's output increases
is the firm's demand curve for labor
will decrease if the firm hires more labor
All of the above are correct
SOLUTION
Solution : D
All the options are correct.
Question 3
An isoquant that is
further from the origin represents greater output
flatter represents the trade-offs between inputs that are poor substitutes
negatively sloped represents input combinations associated with Stage I of production
All of the above are correct
SOLUTION
Solution : A
An isoquant that is further from the origin represents greater output.
Question 4
The combination of inputs is optimal
at points of tangency between isoquants and isocosts
if the marginal revenue product is equal to the marginal resource cost for all inputs
if the marginal rate of technical substitution between every pair of inputs is equal to the ratio of the prices of those inputs
All of the above are correct.
SOLUTION
Solution : D
All options are correct.
Question 5
If isoquants are plotted on a graph with capital measured on the vertical axis and labor on the horizontal axis, then an increase in the wage rate will cause the isocost line
to become steeper and the optimal quantity of labor will decrease
to become steeper and the optimal quantity of labor will increase
to become flatter and the optimal quantity of labor will decrease
to become flatter and the optimal quantity of labor will increase
SOLUTION
Solution : A
If isoquants are plotted on a graph with capital measured on the vertical axis and labor on the horizontal axis, then an increase in the wage rate will cause the isocost line to become steeper and the optimal quantity of labor will decrease.
Question 6
A line that connects all points where the marginal rate of technical substitution is equal to the ratio of input prices is called the
input demand curve
total product curve
expansion path
isocost line
SOLUTION
Solution : C
A line that connects all points where the marginal rate of technical substitution is equal to the ratio of input prices is called the expansion path.
Question 7
If the marginal product of labor is 2, the marginal product of capital is 4, the wage rate is INR 3, the rental price of capital is INR 6, and the price of output is INR 1.50, then the firm should
Increase output by hiring more labor, more capital, or both
Hold output constant, but hire more labor and less capital
Decrease output by reducing the quantity of capital, reducing the number of units of labor, or both
None of the above is correct
SOLUTION
Solution : D
Cost of hiring one additional unit of labour = Rs 3
Revenue from hiring an additional unit of labour
= MP of labour x price = Rs 3Cost of renting one additional unit of capital = Rs 6
Revenue from renting an additional unit of capital
= MP of capital x price = Rs 6Hence, there is no benefit in increasing labour or capital.
Question 8
A country that has an abundance of cheap labor will tend to
import goods that are produced using a lot of labor
refrain from international trade entirely
export goods that are produced using a lot of labor
export goods that are produced using little labor
SOLUTION
Solution : C
A country that has an abundance of cheap labor will tend to export goods that are produced using a lot of labor.
Question 9
Labour is hirable but you cannot hire:
Capital
Land
Manager
Entrepreneur
SOLUTION
Solution : D
All factors except enterpreneur can be hired.
Question 10
Output of food grain in India at one stage was less than its domestic demand. Now it is not. Does it mean that the law of diminishing returns has failed in Indian agriculture?
No
Yes
SOLUTION
Solution : A
No. Rise in output of food grain in India is owing to the use of new technology (related to HYV seeds). When there is an improvement in technology, the occurence of the law of diminishing returns is deferred for some time. It does not mean that the law of diminishing returns has failed. It only postponement of law. The law is bound to set-in again once the effect of new technology is exhausted.