Q.1 What does the Production Function show?
Relationship between inputs and outputs
Relationship between demand and supply
Relationship between cost and revenue
Relationship between savings and investment
Explanation - The production function shows how different inputs are combined to produce a certain level of output.
Correct answer is: Relationship between inputs and outputs
Q.2 Which of the following is a variable factor of production?
Land
Capital equipment
Raw materials
Factory building
Explanation - Raw materials can be changed in the short run, while land, building, and heavy equipment are fixed.
Correct answer is: Raw materials
Q.3 The Law of Diminishing Marginal Returns applies when:
All inputs are variable
At least one input is fixed
All inputs are fixed
There is no change in inputs
Explanation - The law applies in the short run where one factor is variable and the others are fixed.
Correct answer is: At least one input is fixed
Q.4 In the short run, which cost does NOT exist?
Fixed cost
Variable cost
Total cost
Opportunity cost
Explanation - Opportunity cost exists conceptually, but in accounting terms, the short-run cost structure excludes it explicitly.
Correct answer is: Opportunity cost
Q.5 What happens to Average Product when Marginal Product is above it?
It rises
It falls
It stays constant
It becomes zero
Explanation - Whenever marginal product exceeds average product, the average product increases.
Correct answer is: It rises
Q.6 The point where Total Product is maximum, Marginal Product is:
Positive
Zero
Negative
Equal to Average Product
Explanation - When total product reaches maximum, marginal product (the rate of change) is zero.
Correct answer is: Zero
Q.7 Which curve is typically U-shaped in production theory?
Total Product
Average Product
Marginal Product
Average Cost
Explanation - Due to economies and diseconomies of scale, the average cost curve is U-shaped.
Correct answer is: Average Cost
Q.8 Returns to Scale refers to changes in output when:
One input is fixed
All inputs are varied
No inputs are changed
Capital alone changes
Explanation - Returns to scale are studied in the long run where all inputs are variable.
Correct answer is: All inputs are varied
Q.9 When output increases more than proportionately to input increase, it is called:
Decreasing returns to scale
Increasing returns to scale
Constant returns to scale
Law of diminishing returns
Explanation - If output rises more than input rise, we observe increasing returns to scale.
Correct answer is: Increasing returns to scale
Q.10 Which stage of production is considered rational for producers?
Stage I
Stage II
Stage III
All stages
Explanation - Stage II, where both AP and MP are positive but declining, is rational for production.
Correct answer is: Stage II
Q.11 The long-run average cost curve is derived from:
Short-run total cost curves
Short-run average variable cost curves
Short-run average cost curves
Total product curve
Explanation - The LRAC is an envelope of various SRAC curves representing different plant sizes.
Correct answer is: Short-run average cost curves
Q.12 Which factor is considered immobile in the short run?
Labour
Raw material
Land
Fuel
Explanation - Land cannot be easily altered in the short run, making it a fixed factor.
Correct answer is: Land
Q.13 Marginal Cost is defined as:
Change in total cost due to one unit change in output
Total cost divided by output
Fixed cost divided by output
Variable cost divided by output
Explanation - MC is the additional cost incurred by producing one more unit of output.
Correct answer is: Change in total cost due to one unit change in output
Q.14 If marginal cost is below average cost, average cost will:
Increase
Decrease
Stay constant
Become negative
Explanation - AC falls when MC is below it, similar to the average-marginal relationship.
Correct answer is: Decrease
Q.15 Economies of scale occur when:
Long-run average cost rises with output
Long-run average cost falls with output
Short-run marginal cost rises
Variable cost decreases to zero
Explanation - Economies of scale reduce average costs as production expands.
Correct answer is: Long-run average cost falls with output
Q.16 Which of the following is an example of an internal economy of scale?
Cheaper raw materials due to bulk buying
Industry-wide labor pool expansion
Shared infrastructure in a region
Market expansion
Explanation - Internal economies arise within a firm, such as discounts from bulk purchases.
Correct answer is: Cheaper raw materials due to bulk buying
Q.17 In Stage III of production, the Marginal Product is:
Positive
Zero
Negative
Equal to Average Product
Explanation - Stage III begins when marginal product becomes negative, reducing total product.
Correct answer is: Negative
Q.18 A production isoquant shows:
Combinations of inputs producing same output
Combinations of outputs using same input
Minimum cost of production
Maximum revenue levels
Explanation - Isoquants depict all input bundles yielding the same level of output.
Correct answer is: Combinations of inputs producing same output
Q.19 Which shape does an isoquant typically have?
Upward sloping straight line
Downward sloping convex curve
U-shaped
Horizontal line
Explanation - Isoquants are convex to the origin due to the diminishing marginal rate of technical substitution.
Correct answer is: Downward sloping convex curve
Q.20 Marginal Rate of Technical Substitution (MRTS) refers to:
Rate at which one input can replace another keeping output constant
Rate of change of total output
Ratio of fixed to variable inputs
Returns to scale
Explanation - MRTS shows trade-off between inputs while maintaining the same output.
Correct answer is: Rate at which one input can replace another keeping output constant
Q.21 The expansion path connects:
Points of equal revenue
Points of minimum cost at various output levels
Isoquants and isocosts tangent points
Points of maximum profit
Explanation - The expansion path is traced by tangency points of isoquants and isocosts.
Correct answer is: Isoquants and isocosts tangent points
Q.22 The slope of the isocost line is determined by:
Output ratio
Input price ratio
Returns to scale
Marginal productivity
Explanation - Isocost slope equals the ratio of input prices, showing trade-off between factors.
Correct answer is: Input price ratio
Q.23 If both inputs are doubled and output also doubles, returns to scale are:
Increasing
Decreasing
Constant
Negative
Explanation - When output changes in the same proportion as input, it indicates constant returns to scale.
Correct answer is: Constant
Q.24 In the long run, all factors of production are:
Fixed
Variable
Scarce
Non-economic
Explanation - In the long run, firms can adjust all inputs to production.
Correct answer is: Variable
Q.25 Which curve is also called the envelope curve?
Average Variable Cost
Marginal Cost
Long-run Average Cost
Average Product
Explanation - LRAC is the envelope of short-run average cost curves.
Correct answer is: Long-run Average Cost