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

### Question 1

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?

Adil

Kratu

#### SOLUTION

Solution :A

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

### Question 2

At the break-even point

TR=TC

Profit = 0

MR = MC

Profit is maximum

#### SOLUTION

Solution :A and B

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

### Question 3

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.

Rs 2000

Rs 3000

Rs 4000

Rs 6000

#### SOLUTION

Solution :D

Profit=(P−SAC)×q=(300−250)×120=Rs 6000

### Question 4

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

Diseconomies of scale.

Increasing returns.

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

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

### Question 5

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

HoursMP0−1100280360

60

80

100

240

#### SOLUTION

Solution :B

TP = sum of all MPs

=100+80+60 = 240

AP for three hours = TP/3

= 240/3 =80

### Question 6

The difference between average total cost and average variable cost:

is constant

is the total fixed cost

increases as the output decreases

Is the average fixed cost

#### SOLUTION

Solution :D

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

### Question 7

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

Average fixed cost

Average total cost

Average variable cost

Marginal Cost

#### SOLUTION

Solution :B

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

### Question 8

Which of the following statements is correct?

Fixed costs vary with change in output

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

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

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

#### SOLUTION

Solution :D

TC = TFC + TVC

### Question 9

The marginal cost of the sixth unit of output is :

OutputTC0240133024103480454056106690

Rs. 133

Rs. 75

Rs. 80

Rs.450

#### SOLUTION

Solution :C

MPn=TPn−TPn−1=690−610=80

### Question 10

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

rising long-run average cost curve

falling long-run average cost curve

constant long-run average cost curve

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.