Free The Theory of the Firm 02 Practice Test - 11th Grade - Commerce
Question 1
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.
True
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.
Question 2
Vysakh is selling samosas. He already sold 250 samosas. His decision on whether or not to sell the 251st samosa is based on the
MC of the 251st samosa
TC of the 251 samosas
ATC of 251 samosas
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.
Question 3
For a firm operating in a perfectly competitive market, the slope of the TR curve is
increasing
decreasing
constant
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.
Question 4
Which of the following are the same for a price-taking firm?
Marginal revenue
Average revenue
Price
SOLUTION
Solution : A, B, and D
For a price-taking firm, MR = AR = Price
Question 5
Shalini sells lemonades at Rs 10 per glass. If she sells 300 glasses, what is her total revenue?
Rs 1000
Rs 1500
Rs 2000
Rs 3000
SOLUTION
Solution : D
TR=P×Q=300×10=Rs 3000
Question 6
A firm should shut down temporarily if
SAC < P
AVC < P < SAC
P < AVC
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.
Question 7
Some restaurants are closed during some parts of the day because
revenue is not high enough to cover the fixed costs
revenue is not high enough to cover the variable costs
revenue is not high enough to cover the total costs
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.
Question 8
Which of the following points is the shutdown point?
Minimum point of SAC
Minimum point of AVC
Minimum point of AFC
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.
Question 9
For the short run shutdown decision, which of the following cost is treated as sunk cost?
Fixed cost
Variable cost
Marginal cost
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.
Question 10
Producing at the output level corresponding to MR=MC will guarantee profits. State true or false.
True
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.