# Free The Theory of the Firm 01 Practice Test - 11th Grade - Commerce

The profit of a firm is given by ___

A.

(PSAC)×q

B.

(SACP)×q

C.

(PAVC)×q

D.

(AVCP)×q

#### SOLUTION

Solution : A

The profit of a firm is given by (PSAC)×q

The slope of the TFC curve is equal to

A.

AFC

B.

1

C.

-1

D.

0

#### SOLUTION

Solution : D

Slope of TFC curve = 0 since TFC is a constant. TFC curve is a straight line parallel to the x-axis.

The numbers of units produced by a firm and the corresponding costs are tabulated below.

No. of unitsTotal cost100Rs 2000250Rs 3500

Assuming constant variable cost per unit, calculate the AFC for 100 units.

A.

Rs 10

B.

Rs 20

C.

Rs 100

D.

Rs 1000

#### SOLUTION

Solution : A

Let the fixed cost be F and the variable cost per unit be v.

F +100 v = Rs 2000
F + 250 v = Rs 3500

On solving, we get F = 1000 =TFC and v = 10 = AVC
Now, AFC = TFC / 10 = 1000/100 = Rs 10

The slope of the TC curve gives

A.

MC

B.

SAC

C.

AVC

D.

0

#### SOLUTION

Solution : A

The slope of the TC curve = ΔTC/Δq
= MC

What is the shape of the AFC curve?

A.

Parabola

B.

Straight line

C.

Rectangular hyperbola

D.

U-shaped

#### SOLUTION

Solution : C

Shape of the AFC curve is a rectangular hyperbola.

If we multiply the x and y coordinates of any point on the AFC curve, we get

A.

TVC

B.

ATC

C.

TFC

D.

1

#### SOLUTION

Solution : C

If we multiply the x and y coordinates of any point on the AFC curve, we get TFC since
AFC x q = TFC

Which of the following are U-shaped?

A.

AVC

B.

SAC

C.

AFC

D.

SMC

#### SOLUTION

Solution : A, B, and D

AVC, SAC and SMC are U-shaped

Which of the following pairs of curves start from the same point?

A.

AVC and AFC

B.

SAC and AVC

C.

SAC and SMC

D.

AVC and SMC

#### SOLUTION

Solution : D

For the first unit of output, SMC =AVC. Hence these two curves start from the same point.

Which of the factors are responsible for the initial fall in the SAC curve?

A.

B.

Increasing returns

C.

Diminishing returns

D.

Constant returns

#### SOLUTION

Solution : A and B

Spreading effect and increasing returns to factor are responsible for the initial fall in the SAC curve.

Identify the correct choices.

A.

Spreading effect dominates at lower levels of output

B.

Diminishing returns dominates at lower levels of output

C.

Spreading effect dominates at higher levels of output

D.

Diminishing returns effect dominates at higher levels of output.

#### SOLUTION

Solution : A and D

Spreading effect dominates at lower levels of output and diminishing returns effect dominates at higher levels of output.