# Free The Supply Curve 01 Practice Test - 11th Grade - Commerce

The total cost of production at different output levels for a firm are tabulated below. What is the profit-maximizing level of output at a market price of Rs 10?

QTC (Rs)115222327431538649763

A.

1

B.

4

C.

5

D.

6

#### SOLUTION

Solution : C

Let us add the MC column to the table

QTC (Rs)MC (Rs)1151522273275431453876491176314

At an output level of 5, MC =7 < P=10
At an output level of 6, MC =11 > P=10
Hence, the profit is maximum at an output level of 5 because the 6th unit will incur a loss.

For a good, price increases by 25% and quantity supplied increases by 50%. What is the supply elasticity?

A.

0.5

B.

1

C.

2

D.

4

#### SOLUTION

Solution : C

ϵs=% change in quantity% change in price=5025=2

Which of the following can be the equation of the supply curve?

A.

q=2p

B.

pq+p+2q=0

C.

3q+0.5p=8

D.

q0.4p+2=0

#### SOLUTION

Solution : D

The supply curve is upward sloping. Among the given options, only q - 0.4p+ 2=0 has a positive slope.

The minimum point of a firm's LRAC is Rs 8, at which it produces a quantity of 500. Which of the following price-quantity pairs (p,q) can lie on the supply curve?

A.

(5,400)

B.

(10,400)

C.

(7,600)

D.

(9,700)

#### SOLUTION

Solution : D

The supply curve is the portion of the MC curve above the LRAC. It starts from the minimum point of the LRAC. Since the supply curve is upward sloping, for any point on the supply curve, the price will be greater than Rs 8 and quantity greater than 500 units. Only option D satisfies this condition.

If the cost of a computer component falls, _________

A.

the demand curve for computers shift to the right

B.

the demand curve for computers shift to the left

C.

the supply curve for computers shift to the right

D.

the supply curve for computers shift to the left

#### SOLUTION

Solution : C

If the cost of a computer component falls, the supply curve will shift to the right due to the reduced costs of production.

Which of the following rules should be followed by a supplier for profit maximization?

A.

Keep producing until the total revenue is equal to total cost.

B.

produce an additional unit of good if the price is greater than the marginal cost

C.

do not produce an additional unit if its marginal cost is higher than the marginal cost of the previously produced units

D.

Always produce an additional unit when the marginal revenue is greater than zero.

#### SOLUTION

Solution : B

If the price is greater than the marginal cost of the next unit, the firm should continue production as there is a profit on producing the additional unit.

Study the supply curve given below and answer the following question. For the supplier, when the marginal cost of producing a unit is $2, his profit is maximized. What quantity would he supply? A. 2 B. 4 C. 6 D. 8 #### SOLUTION Solution : B Profit maximization occurs when MC = P. Since his profit maximization occurs at a marginal cost of$2, the market price is also \$2. At this price, he would supply 4 units.

The supply curve of rare collectables will be?

A.

perfectly elastic

B.

perfectly inelastic

C.

unitary elastic

D.

none of these

#### SOLUTION

Solution : B

The quantity of rare collectables is limited and as such, do not change with price. Hence, the supply curve would be perfectly inelastic.

A rise in the cost of inputs of production will shift the supply curve to the right. State true or false.

A.

True

B.

False

#### SOLUTION

Solution : B

A rise in the cost of inputs of production will shift the supply curve to the left as the higher input costs correspond to a lower profit maximising quantity.

The price of a good changes from Rs 20 to Rs 25. As a result, the quantity supplied changes from 500 units to 1000 units. Calculate the price elasticity of supply.

A.

2

B.

2.5

C.

4

D.

5

#### SOLUTION

Solution : C

Price changes from Rs 20 to Rs 25 and qunatity supplied changes from 500 to 1000.
ϵs=q1q0p1p0×p0q0ϵs=10005002520×20500ϵs=500×20500×5=4