Q.1 Which of the following best defines Total Cost?
Fixed Cost + Variable Cost
Fixed Cost - Variable Cost
Revenue - Profit
Price × Quantity
Explanation - Total cost is the sum of fixed costs (which do not vary with output) and variable costs (which vary with output).
Correct answer is: Fixed Cost + Variable Cost
Q.2 What is the formula for Average Cost (AC)?
AC = TC × Q
AC = TC / Q
AC = FC / Q
AC = VC - FC
Explanation - Average cost is calculated by dividing the total cost (TC) by the quantity of output (Q).
Correct answer is: AC = TC / Q
Q.3 If Total Revenue (TR) = Price × Quantity, then Average Revenue (AR) is equal to:
TR / Q
TR × Q
TR - Q
TR + Q
Explanation - Average Revenue (AR) is Total Revenue divided by the quantity of output, which equals price under perfect competition.
Correct answer is: TR / Q
Q.4 Marginal Cost (MC) is defined as:
Change in TR / Change in Q
Change in TC / Change in Q
FC + VC
TR - TC
Explanation - Marginal Cost measures the additional cost incurred by producing one more unit of output, calculated as ΔTC/ΔQ.
Correct answer is: Change in TC / Change in Q
Q.5 Which cost remains constant regardless of output?
Fixed Cost
Variable Cost
Total Cost
Marginal Cost
Explanation - Fixed cost does not change with output in the short run, such as rent or salaries of permanent staff.
Correct answer is: Fixed Cost
Q.6 If a firm produces 100 units with a Total Cost of ₹500, what is the Average Cost?
₹5
₹50
₹100
₹10
Explanation - Average Cost = Total Cost / Quantity = 500 / 100 = ₹5 per unit.
Correct answer is: ₹5
Q.7 When Total Revenue equals Total Cost, the firm is at:
Loss
Break-even point
Profit
Shut down point
Explanation - The break-even point is where total revenue equals total cost, meaning no profit or loss.
Correct answer is: Break-even point
Q.8 What is the shape of the Marginal Cost (MC) curve in the short run?
U-shaped
Straight line
Horizontal
Downward sloping
Explanation - Marginal Cost curve is typically U-shaped due to increasing and then decreasing returns to a factor.
Correct answer is: U-shaped
Q.9 Which revenue concept always equals Price under perfect competition?
Average Revenue
Marginal Revenue
Total Revenue
Fixed Revenue
Explanation - Under perfect competition, price remains constant, so AR = Price.
Correct answer is: Average Revenue
Q.10 If Total Fixed Cost is ₹200 and Total Variable Cost is ₹300, then Total Cost is:
₹100
₹200
₹500
₹600
Explanation - Total Cost = Fixed Cost + Variable Cost = 200 + 300 = ₹500.
Correct answer is: ₹500
Q.11 Which of the following is an example of a Variable Cost?
Factory Rent
Manager’s Salary
Raw Material Cost
Insurance Premium
Explanation - Variable costs change with output, such as raw materials.
Correct answer is: Raw Material Cost
Q.12 Profit is calculated as:
TR + TC
TR - TC
TC - TR
TR × TC
Explanation - Profit is the difference between total revenue and total cost.
Correct answer is: TR - TC
Q.13 The slope of the Total Cost curve is:
Average Cost
Marginal Cost
Fixed Cost
Revenue
Explanation - The slope of the total cost curve at any output is the marginal cost of that unit.
Correct answer is: Marginal Cost
Q.14 What happens to Average Fixed Cost as output increases?
Remains constant
Increases
Decreases
First decreases then increases
Explanation - Average Fixed Cost decreases as fixed cost is spread over more units of output.
Correct answer is: Decreases
Q.15 If TR = ₹1000 and TC = ₹800, Profit is:
₹200
₹1800
₹800
₹1000
Explanation - Profit = TR - TC = 1000 - 800 = ₹200.
Correct answer is: ₹200
Q.16 Which cost concept is relevant for decision-making in the short run?
Sunk Cost
Marginal Cost
Fixed Cost
Average Fixed Cost
Explanation - Marginal cost is crucial in short-run decisions as it shows the cost of producing one more unit.
Correct answer is: Marginal Cost
Q.17 If a firm’s AR = MR, it implies:
Perfect competition
Monopoly
Oligopoly
Monopolistic competition
Explanation - In perfect competition, both average revenue and marginal revenue equal price, hence AR = MR.
Correct answer is: Perfect competition
Q.18 At shutdown point, a firm covers:
Only Variable Cost
Only Fixed Cost
Both Fixed and Variable Costs
No Costs
Explanation - At shutdown point, a firm can only cover its variable costs; it cannot cover fixed costs.
Correct answer is: Only Variable Cost
Q.19 If Quantity produced = 50 and Fixed Cost = ₹100, what is Average Fixed Cost?
₹2
₹5
₹10
₹20
Explanation - AFC = FC / Q = 100 / 50 = ₹2.
Correct answer is: ₹2
Q.20 Which curve is always above the Average Variable Cost curve?
MC curve
AC curve
AFC curve
TR curve
Explanation - Average Cost (AC) is always greater than or equal to Average Variable Cost (AVC) because AC includes fixed costs.
Correct answer is: AC curve
Q.21 Total Revenue is maximum when:
MR = 0
AR = 0
MC = 0
TR = TC
Explanation - Total revenue reaches its maximum point when marginal revenue becomes zero.
Correct answer is: MR = 0
Q.22 Opportunity cost is defined as:
Explicit cost
Implicit cost
Best alternative foregone
Sunk cost
Explanation - Opportunity cost represents the value of the next best alternative sacrificed.
Correct answer is: Best alternative foregone
Q.23 In economics, sunk costs are:
Relevant for decision making
Irrelevant for decision making
Equal to fixed costs
Equal to variable costs
Explanation - Sunk costs are past costs that cannot be recovered, hence irrelevant for current decisions.
Correct answer is: Irrelevant for decision making
Q.24 If AR is decreasing, then MR is:
Equal to AR
Less than AR
Greater than AR
Zero
Explanation - When average revenue falls, marginal revenue lies below AR due to the downward-sloping demand curve.
Correct answer is: Less than AR
Q.25 What does the point of intersection of MC and AC indicate?
Break-even point
Profit-maximizing point
Minimum AC point
Shut down point
Explanation - The marginal cost curve always intersects the average cost curve at its minimum point.
Correct answer is: Minimum AC point