# Free The Theory of the Firm 03 Practice Test - 11th Grade - Commerce

Adil and Kratu are joining a master's program in management. Adil has freshly graduated out of college and has a job offer worth Rs 5 lakhs from a company. Kratu quit his job which earned him Rs 4 lakhs per year. Whose opportunity cost is more?

A.

B.

Kratu

#### SOLUTION

Solution : A

The opportunity cost for Adil is Rs 5 lakhs and for Kratu it is 4 lakhs.

At the break-even point

A.

TR=TC

B.

Profit = 0

C.

MR = MC

D.

Profit is maximum

#### SOLUTION

Solution : A and B

At the break-even point, TR=TC and profits are zero.

The market price of a pizza is Rs 300. Corresponding to an output of 120 units, the average total cost of producing a pizza is Rs 250. Calculate his total profit at this output level.

A.

Rs 2000

B.

Rs 3000

C.

Rs 4000

D.

Rs 6000

#### SOLUTION

Solution : D

Profit=(PSAC)×q=(300250)×120=Rs 6000

The positively sloped (i.e. rising) part of the long run average total cost curve is due to which of the following?

A.

Diseconomies of scale.

B.

Increasing returns.

C.

The firm being able to take advantage of large-scale production techniques as it expands its output.

D.

The increase in productivity that results from specialization.

#### SOLUTION

Solution : A

The positively sloped (i.e. rising) part of the long run average total cost curve is due to diseconomies of scale

What is the average product of the first three hours of labour?
HoursMP01100280360

A.

60

B.

80

C.

100

D.

240

#### SOLUTION

Solution : B

TP = sum of all MPs
=100+80+60 = 240
AP for three hours = TP/3
= 240/3 =80

The difference between average total cost and average variable cost:

A.

is constant

B.

is the total fixed cost

C.

increases as the output decreases

D.

Is the average fixed cost

#### SOLUTION

Solution : D

The difference between average total cost and average variable cost is the average fixed cost.

The efficient scale of production is the quantity of output that minimizes the ___ .

A.

Average fixed cost

B.

Average total cost

C.

Average variable cost

D.

Marginal Cost

#### SOLUTION

Solution : B

The efficient scale of production is the quantity of output that minimizes the average total cost.

Which of the following statements is correct?

A.

Fixed costs vary with change in output

B.

If we add total variable cost and total fixed cost we get the average cost

C.

Marginal cost is the result of total cost divided by number of units produced

D.

Total cost is obtained by adding up the total fixed cost and the total variable cost

#### SOLUTION

Solution : D

TC = TFC + TVC

The marginal cost of the sixth unit of output is :

OutputTC0240133024103480454056106690

A.

Rs. 133

B.

Rs. 75

C.

Rs. 80

D.

Rs.450

#### SOLUTION

Solution : C

MPn=TPnTPn1=690610=80

A firm encountering economies of scale over some range of output will have a

A.

rising long-run average cost curve

B.

falling long-run average cost curve

C.

constant long-run average cost curve

D.

rising, then falling, then rising long-run average cost curve

#### SOLUTION

Solution : B

A firm encountering economies of scale over some range of output will have a  falling long-run average cost curve.