# Free The Theory of the Firm 02 Practice Test - 11th Grade - Commerce

The diminishing marginal product of a variable factor implies that the amount of variable factor required per unit of output decreases. State true or false.

A.

True

B.

False

#### SOLUTION

Solution : B

The diminishing marginal product of a variable factor implies that the amount of variable factor required per unit of output increases. Hence, the statement is false.

Vysakh is selling samosas. He already sold 250 samosas. His decision on whether or not to sell the 251st samosa is based on the ___

A.

MC of the 251st samosa

B.

TC of the 251 samosas

C.

ATC of 251 samosas

D.

AVC of 251 samosas

#### SOLUTION

Solution : A

On taking any economic decisions, only the marginal quantities are important. In this case, the relevant decision variable is the marginal quantity of the 251st samosa.

For a firm operating in a perfectly competitive market, the slope of the TR curve is

A.

increasing

B.

decreasing

C.

constant

D.

zero

#### SOLUTION

Solution : C

For a firm operating in a perfectly competitive market, the slope of the TR curve is equal to the price and is constant.

Which of the following are the same for a price-taking firm?

A.

Marginal revenue

B.

Average revenue

C. Total Revenue

D.

Price

#### SOLUTION

Solution : A, B, and D

For a price-taking firm, MR = AR = Price

Shalini sells lemonades at Rs 10 per glass. If she sells 300 glasses, what is her total revenue?

A.

Rs 1000

B.

Rs 1500

C.

Rs 2000

D.

Rs 3000

#### SOLUTION

Solution : D

TR=P×Q=300×10=Rs 3000

A firm should shut down temporarily if

A.

SAC < P

B.

AVC < P < SAC

C.

P < AVC

D.

None of these

#### SOLUTION

Solution : C

In the short run, fixed costs are treated as sunk costs. Hence, a firm should shut down temporarily if P<AVC. If AVC<P<SAC, the firm should remain operational.

Some restaurants are closed during some parts of the day because

A.

revenue is not high enough to cover the fixed costs

B.

revenue is not high enough to cover the variable costs

C.

revenue is not high enough to cover the total costs

D.

revenue is greater than the variable cost

#### SOLUTION

Solution : B

Some restaurants are closed during some parts of the day because revenue is not high enough to cover the variable costs and hence meets the short-run shutdown condition.

Which of the following points is the shutdown point?

A.

Minimum point of SAC

B.

Minimum point of AVC

C.

Minimum point of AFC

D.

Minimum point of SMC

#### SOLUTION

Solution : B

A firm should shut down temporarily if the price is less than the minimum point of the average variable cost. Hence the minimum point of AVC is the shutdown point.

For the short run shutdown decision, which of the following cost is treated as sunk cost?

A.

Fixed cost

B.

Variable cost

C.

Marginal cost

D.

Total cost

#### SOLUTION

Solution : A

For the short run shutdown decision, the fixed costs are treated as sunk costs because they must be paid regardless of whether output is being produced or not.

Producing at the output level corresponding to MR=MC will guarantee profits. State true or false.

A.

True

B.

False

#### SOLUTION

Solution : B

Producing at the output level corresponding to MR=MC will guarantee profits if and only if the price is greater than the minimum value of SAC. Hence, the statement is false.