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.