Quiz on Theory of Production and Cost

#1. Which of the following is considered production in Economics?

Tilling of soil

Singing a song before friends

Preventing a child from falling into a manhole on the road.

Painting a picture for pleasure

#2. Identify the correct statement

The average product is at its maximum when marginal product is equal to average product

The law of increasing returns to scale relates to the effect of changes in factor proportions

Economies of scale arise only because of indivisibilities of factor proportions.

Internal economies of scale can accrue when industry expands beyond optimum.

#3. Which of the following is not a characteristic of land?

Its supply for the economy is limited.

It is immobile

Its usefulness depends on human efforts

It is produced by our forefathers.

#4. Which of the following statements is true?

Accumulation of capital depends solely on income of individuals

Savings can be influenced by govemment policies.

External economies go with size and internal economies with location

The supply curve of labour is an upward slopping curve.

#5. In the production of wheat, all of the following are variable factors that are used by the farmer except

the seed and fertilizer used when the crop is planted.

the field that has been cleared of trees and in which the crop is planted

the tractor used by the farmer in planting and cultivating not only wheat but also com and barley

the number of hours that the farmer spends in cultivating the wheat fields

#6. The marginal product of a variable input is best described as

total product divided by the number of units of variable input.

the additional output resulting from a one unit increase in the variable Input

the additional output resulting from a one unit increase in both the variable and fixed inputs

the ratio of the amount of the variable input that is being used to the amount of the fixed input that is being used.

#7. Diminishing marginal returns implies:

decreasing average variable costs.

decreasing marginal costs.

increasing marginal costs.

decreasing average fixed costs

#8. The short run, as economists use the phrase is characterized by

at least one fixed factor of production and firms neither leaving nor entering the industry

generally a period which is shorter than one year

all factors of production are fixed and no variable inputs

all inputs are variable and production is done in less than one year

#9. The marginal average, and total product curves encountered by the firm producing in the short run exhibit all of the following relationships except:

when total product is rising, average and marginal product may be either rising or falling.

when marginal product is negative, total product and average product are falling

when average product is at a maximum, marginal product equals average product, and total product is rising

when marginal product is at a maximum, average product equals marginal product, and total product is rising

#10. To economists, the main difference between the short run and the long run is that:

In the short run all inputs are fixed while in the long run all inputs are variable.

in the short run the firm varies all of its inputs to find the least-cost combination of inputs.

In the short run, at least one of the firm’s input levels is fixed.

In the long run, the firm is making a constrained decision about how to use existing plant and equipment efficiently

#11. Which of the following is the best definition of “production function”?

The relationship between market price and quantity supplied

The relationship between the firm’s total revenue and the cost of production.

The relationship between the quantities of inputs needed to produce a given level of output.

The relationship between the quantity of inputs and the firm’s marginal cost of production

#12. The “law of diminishing returns” applies to:

the short run, but not the long run

the long run, but not the short run

both the short run and the long run

neither the short run nor the long run.

#13. Diminishing returns occur:

when units of a variable input are added to a fixed input and total product falls.

when units of a variable input are added to a fixed input and marginal product falls

when the size of the plant is increased in the long run

when the quantity of the fixed input is increased and returns to the variable input falls

#14. What is the total output when 2 hours of labour are employed?( as per info given on pg no 3.45)

100

180

200

#15. What is the marginal product of the third hour of labour?pg no 3.45 qno 15

100

240

#16. What is the average product of the first three hours of labour? pg no 3.45 qno 16

100

240

#17. Which cost increases continuously with the increase in production?

Average cost

Marginal cost.

Fixed cost

Variable cost

#18. Which of the following cost curves is never ‘U’ shaped?

Average cost curve

Marginal cost curve

Average variable cost curve.

Average fixed cost curve

#19. Total cost in the short run is classified into fixed costs and variable costs. Which one of the following is a variable cost?

Cost of raw materials

Cost of equipment.

Interest payment on past borrowings

Payment of rent on building.

#20. In the short run, when the output of a firm increases, its average fixed cost:

increases.

decreases

remains constant

first declines and then rises.

#21. Which one of the following is also known as planning curve?

Long run average cost curve

Short run average cost curve

Average variable cost curve.

Average total cost curve

#22. If a firm moves from one point on a production isoquant to another, which of the following will not happen

A change in the ratio in which the inputs are combined to produce output

A change in the ratio of marginal products of the inputs.

A change in the marginal rate of technical substitution

A change in the level of output

#23. With which of the following is the concept of marginal cost closely related?

Variable cost.

Fixed cost.

Opportunity cost.

Economic cost

#24. Which of the following statements is correct?

When the average cost is rising, the marginal cost must also be rising

When the average cost is rising, the marginal cost must be falling

When the average cost is rising, the marginal cost is above the average cost

When the average cost is falling, the marginal cost must be rising.

#25. Which of the following is an example of “explicit cost”?

The wages a proprietor could have made by working as an employee of a large firm

The income that could have been earned in alternative uses by the resources owned by the firm

The payment of wages by the firm.

The normal profit earned by a firm.

#26. Which of the following is an example of an “implicit cost”?

Interest that could have been earned on retained earnings used by the firm to finance expansion

The payment of rent by the firm for the building in which it is housed.

The interest payment made by the firm for funds borrowed from a bank.

The payment of wages by the firm.

#27. The average fixed cost of 2 units of output is : as per info given on pgno 3.47 qno 27

120

205

#28. The marginal cost of the sixth unit of output is pg no 3.47 qno 28

133

450

#29. Diminishing marginal returns start to occur between units: pg no 3.47 qno 29

2 and 3

3 and 4.

4 and 5

5 and 6

#30. Marginal cost is defined as:

the change in total cost due to a one unit change in output

total cost divided by output.

the change in output due to a one unit change in an input

total product divided by the quantity of input.

#31. Which of the following is true of the relationship between the marginal cost function and the average cost function?

If MC is greater than ATC, then ATC is falling

The ATC curve intersects the MC curve at minimum MC

The MC curve intersects the ATC curve at minimum ATC.

If MC is less than ATC, then ATC is increasing

#32. Which of the following statements is true of the relationship among the average cost functions?

ATC = AFC – AVC.

AVC = AFC + ATC

AFC = ATC + AVC

AFC = ATC – AVC

#33. Which of the following is not a determinant of the firm’s cost function?

The production function.

The price of labour

Taxes

The price of the firm’s output

#34. Which of the following statements is correct concerning the relationships among the firm’s cost functions?

TC = TFC – TVC

TVC = TFC – TC

TFC = TC – TVC

TC = TVC – TFC

#35. Suppose output increases in the short run. Total cost will:

increase due to an increase in fixed costs only

increase due to an increase in variable costs only

increase due to an increase in both fixed and variable costs

decrease if the firm is in the region of diminishing returns

#36. Which of the following statements concerning the long-run average cost curve is false?

It represents the least-cost input combination for producing each level of output

It is derived from a series of short-run average cost curves

The short-run cost curve at the minimum point of the long-run average cost curve represents the least–cost plant size for all levels of output

As output increases, the amount of capital employed by the firm increases along the curve

#37. The negatively-sloped (i.e. falling) part of the long-run average total cost curve is due to which of the following?

Diseconomies of scale

Diminishing returns

The difficulties encountered in coordinating the many activities of a large firm

The increase in productivity that results from specialization

#38. 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.

#39. A firm’s average total cost is ` 300 at 5 units of output and ` 320 at 6 units of output. The marginal cost of producing the 6th unit is :

120

320

420

#40. A firm producing 7 units of output has an average total cost of ` 150 and has to pay ` 350 to its fixed factors of production whether it produces or not. How much of the average total cost is made up of variable costs?

200

300

100

#41. A firm has a variable cost of ` 1000 at 5 units of output. If fixed costs are ` 400, what will be the average total cost at 5 units of output?

280

120

1400

#42. A firm’s average fixed cost is ` 20 at 6 units of output. What will it be at 4 units of output?

#43. Which of the following statements is true?

The services of a doctor are considered production

Man can create matter

The services of a housewife are considered production

When a man creates a table, he creates matter.

#44. Which of the following is a function of an entrepreneur?

Initiating a business enterprise.

Risk bearing.

Innovating.

All of the above

#45. In describing a given production technology, the short run is best described as lasting:

up to six months from now.

up to five years from now

as long as all inputs are fixed

as long as at least one input is fixed

#46. If decreasing returns to scale are present, then if all inputs are increased by 10% then:

output will also decrease by 10%.

output will increase by 10%.

output will increase by less than 10%.

output will increase by more than 10%

#47. The production function is a relationship between a given combination of inputs and:

another combination that yields the same output

the highest resulting output.

the increase in output generated by one-unit increase in one output

all levels of output that can be generated by those inputs

#48. If the marginal product of labour is below the average product of labour, it must be true that:

the marginal product of labour is negative.

the marginal product of labour is zero

the average product of labour is falling

the average product of labour is negative

#49. The average product of labour is maximized when marginal product of labour:

equals the average product of labour

equals zero.

is maximized.

none of the above.

#50. The law of variable proportions is drawn under all of the assumptions mentioned below except the assumption that:

the technology is changing

there must be some inputs whose quantity is kept fixed

we consider only physical inputs and not economically profitability in monetary terms.

the technology is given and stable.

#51. What is a production function?

Technical relationship between physical inputs and physical output

Relationship between fixed factors of production and variable factors of production

Relationship between a factor of production and the utility created by it

Relationship between quantity of output produced and time taken to produce the output

#52. Laws of production does not include ……

returns to scale.

law of diminishing returns to a factor

law of variable proportions

least cost combination of factors

#53. An iso quant shows

All the alternative combinations of two inputs that can be produced by using a given set of output fully and in the best possible way

All the alternative combinations of two products among which a producer is indifferent because they yield the same profit.

All the alternative combinations of two inputs that yield the same total product.

Both (b) and (c).

#54. Economies of scale exist because as a firm increases its size in the long run:

Labour and management can specialize in their activities more.

As a larger input buyer, the firm can get finance at lower cost and purchase inputs at a lower per unit cost

The firm can afford to employ more sophisticated technology in production

All of these

#55. The production function:

Is the relationship between the quantity of inputs used and the resulting quantity of product.

Tells us the maximum attainable output from a given combination of inputs

Expresses the technological relationship between inputs and output of a product.

All the above

#56. The production process described below exhibits. q no: 56 pgno 3.51

constant marginal product of labour

diminishing marginal product of labour

increasing return to scale

increasing marginal product of labour

#57. Which of the following is a variable cost in the short run?

rent of the factory

wages paid to the factory labour

interest payments on borrowed financial capital.

payment on the lease for factory equipment.

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

average fixed cost.

average total cost.

average variable cost

marginal cost.

#59. In the short run, the firm’s product curves show that

Total product begins to decrease when average product begins to decrease but continues to increase at a decreasing rate.

When marginal product is equal to average product, average product is decreasing but at its highest.

When the marginal product curve cuts the average product curve from below, the average product is equal to marginal product

In stage two, total product increases at a diminishing rate and reaches maximum at the end of this stage.

#60. A fixed input is defined as

That input whose quantity can be quickly changed in the short run, in response to the desire of the company to change its production

That input whose quantity cannot be quickly changed in the short run, in response to the desire of the company to change its production.

That input whose quantities can be easily changed in response to the desire to increase or reduce the level of production

That input whose demand can be easily changed in response to the desire to increase or reduce the level of production

#61. Average product is defined as

total product divided by the total cost

total product divided by marginal product.

total product divided by the number of units of variable input

marginal product divided by the number of units of variable input.

#62. Which of the following statements is true?

After the inflection point of the production function, a greater use of the variable input induces a reduction in the marginal product

Before reaching the inevitable point of decreasing marginal returns, the quantity of output obtained can increase at an increasing rate

The first stage corresponds to the range in which the AP is increasing as a result of utilizing increasing quantities of variable inputs

All the above.

#63. Marginal product, mathematically, is the slope of the

total product curve.

average product curve

marginal product curve

implicit product curve

#64. Suppose the first four units of a variable input generate corresponding total outputs of 200, 350, 450, 500. The marginal product of the third unit of input is:

100

150

200

#65. Which of the following statements is false in respect of fixed cost of a firm?

As the fixed inputs for a firm cannot be changed in the short run, the TFC are constant, except when the prices of the fixed inputs change

TFC continue to exist even when production is stopped in the short run, but they exist in the long run even when production is not stopped.

Total Fixed Costs (TFC) can be defined as the total sum of the costs of all the fixed inputs associated with production in the short run.

In the short run, a firm’s fixed cost cannot be escaped even when production is stopped.

#66. Diminishing marginal returns for the first four units of a variable input is exhibited by the total product sequence:

50, 50, 50, 50

50, 110, 180, 260

50, 100, 150, 200

50, 90, 120, 140

#67. Use the following diagram to answer the question given below it qno;67 pgno 3.53 The marginal physical product of the third unit of labour is _, the MP of the _ labour is Negative

Six; fourth

Six; third

Six ; fifth

Six; sixth

#68. In the third of the three stages of production

the marginal product curve has a positive slope.

the marginal product curve lies completely below the average product curve

total product increases

marginal product is positive

#69. When marginal costs are below average total costs,

average fixed costs are rising.

average total costs are falling.

average total costs are rising.

average total costs are minimized

#70. A firm’s long-run average total cost curve is

Identical to its long-run marginal-cost curve

Also its long-run supply curve because it explains the relationship between price and quantity supplied.

In fact the average total cost curve of the optimal plant in the short run as it tries to produce at least cost.

Tangent to all the curves of short-run average total cost.

#71. In the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience

an increase in pollution level.

diseconomies of scale

economies of scale.

constant returns to scale.

#72. A firm’s long-run average total cost curve is

Identical to its long-run marginal-cost curve as all factors are variable

Also its long-run total cost curve because it explains the relationship cost and quantity supplied in the long run.

In fact the average total cost curve of the optimal plant in the short run as it tries to produce at least cost.

Tangent to all short-run average total cost the curves and represents the lowest average total cost for producing each level of output.

#73. Which of the following statements describes increasing returns to scale?

Doubling of all inputs used leads to doubling of the output.

Increasing the inputs by 50% leads to a 25% increase in output

Increasing inputs by 1/4 leads to an increase in output of 1/3

None of the above.

#74. The marginal cost for a firm of producing the 9th unit of output is ` 20. Average cost at the same level of output is ` 15. Which of the following must be true?

marginal cost and average cost are both falling

marginal cost and average cost are both rising

marginal cost is rising and average cost is falling

it is impossible to tell if either of the curves are rising or falling

#75. Implicit cost can be defined as

Money payments made to the non-owners of the firm for the self-owned factors employed in the business and therefore not entered into books of accounts.

Money not paid out to the owners of the firm for the self-owned factors employed in a business and therefore not entered into books of accounts.

Money payments which the self-owned and employed resources could have earned in their next best alternative employment and therefore entered into books of accounts

Money payments which the self-owned and employed resources earn in their best use and therefore entered into book of accounts.

#76. The most important function of an entrepreneur is to ____________.

Innovate

Bear the sense of responsibility

Finance

Earn profit

#77. Economic costs of production differ from accounting costs of production because

Economic costs include expenditures for hired resources while accounting costs do not.

Accounting costs include opportunity costs which are deducted later to find paid out costs.

Accounting costs include expenditures for hired resources while economic costs do not

Economic costs add the opportunity cost of a firm which uses its own resources.

#78. In figure below, possible reason why the average variable cost curve approaches the average total cost curve as output rises is: qno;78 pgno 3.55

Fixed costs are falling while total costs are rising at rising output.

Total costs are rising and average costs are also rising.

Marginal costs are above average variable costs as output rises.

Average fixed costs are falling as output rises.

#79. Marginal cost changes due to changes in —————

Total cost

Average cost

Variable cost

Quantity of output

#80. 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 fixed cost and total variable cost.

#81. Which of the following statements is incorrect?

The LAC curve is also called the planning curve of a firm

Total revenue = price per unit × number of units sold.

Opportunity cost is also called alternative cost.

If total revenue is divided by the number of units sold we get marginal revenue.

#82. The vertical difference between TVC and TC is equal to-

AVC

TFC

None of the above

Finish

Results

Quiz on Theory of Production and Cost

#1. Which of the following is considered production in Economics?

#2. Identify the correct statement

#3. Which of the following is not a characteristic of land?

#4. Which of the following statements is true?

#5. In the production of wheat, all of the following are variable factors that are used by the farmer except

#6. The marginal product of a variable input is best described as

#7. Diminishing marginal returns implies:

#8. The short run, as economists use the phrase is characterized by

#9. The marginal average, and total product curves encountered by the firm producing in the short run exhibit all of the following relationships except:

#10. To economists, the main difference between the short run and the long run is that:

#11. Which of the following is the best definition of “production function”?

#12. The “law of diminishing returns” applies to:

#13. Diminishing returns occur:

#14. What is the total output when 2 hours of labour are employed?( as per info given on pg no 3.45)

#15. What is the marginal product of the third hour of labour?pg no 3.45 qno 15

#16. What is the average product of the first three hours of labour? pg no 3.45 qno 16

#17. Which cost increases continuously with the increase in production?

#18. Which of the following cost curves is never ‘U’ shaped?

#19. Total cost in the short run is classified into fixed costs and variable costs. Which one of the following is a variable cost?

#20. In the short run, when the output of a firm increases, its average fixed cost:

#21. Which one of the following is also known as planning curve?

#22. If a firm moves from one point on a production isoquant to another, which of the following will not happen

#23. With which of the following is the concept of marginal cost closely related?

#24. Which of the following statements is correct?

#25. Which of the following is an example of “explicit cost”?

#26. Which of the following is an example of an “implicit cost”?

#27. The average fixed cost of 2 units of output is : as per info given on pgno 3.47 qno 27

#28. The marginal cost of the sixth unit of output is pg no 3.47 qno 28

#29. Diminishing marginal returns start to occur between units: pg no 3.47 qno 29

#30. Marginal cost is defined as:

#31. Which of the following is true of the relationship between the marginal cost function and the average cost function?

#32. Which of the following statements is true of the relationship among the average cost functions?

#33. Which of the following is not a determinant of the firm’s cost function?

#34. Which of the following statements is correct concerning the relationships among the firm’s cost functions?

#35. Suppose output increases in the short run. Total cost will:

#36. Which of the following statements concerning the long-run average cost curve is false?

#37. The negatively-sloped (i.e. falling) part of the long-run average total cost curve is due to which of the following?

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

#39. A firm’s average total cost is ` 300 at 5 units of output and ` 320 at 6 units of output. The marginal cost of producing the 6th unit is :

#40. A firm producing 7 units of output has an average total cost of ` 150 and has to pay ` 350 to its fixed factors of production whether it produces or not. How much of the average total cost is made up of variable costs?

#41. A firm has a variable cost of ` 1000 at 5 units of output. If fixed costs are ` 400, what will be the average total cost at 5 units of output?

#42. A firm’s average fixed cost is ` 20 at 6 units of output. What will it be at 4 units of output?

#43. Which of the following statements is true?

#44. Which of the following is a function of an entrepreneur?

#45. In describing a given production technology, the short run is best described as lasting:

#46. If decreasing returns to scale are present, then if all inputs are increased by 10% then:

#47. The production function is a relationship between a given combination of inputs and:

#48. If the marginal product of labour is below the average product of labour, it must be true that:

#49. The average product of labour is maximized when marginal product of labour:

#50. The law of variable proportions is drawn under all of the assumptions mentioned below except the assumption that:

#51. What is a production function?

#52. Laws of production does not include ……

#53. An iso quant shows

#54. Economies of scale exist because as a firm increases its size in the long run:

#55. The production function:

#56. The production process described below exhibits. q no: 56 pgno 3.51

#57. Which of the following is a variable cost in the short run?

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

#59. In the short run, the firm’s product curves show that

#60. A fixed input is defined as

#61. Average product is defined as

#62. Which of the following statements is true?

#63. Marginal product, mathematically, is the slope of the

#64. Suppose the first four units of a variable input generate corresponding total outputs of 200, 350, 450, 500. The marginal product of the third unit of input is:

#65. Which of the following statements is false in respect of fixed cost of a firm?

#66. Diminishing marginal returns for the first four units of a variable input is exhibited by the total product sequence:

#67. Use the following diagram to answer the question given below it qno;67 pgno 3.53 The marginal physical product of the third unit of labour is _____, the MP of the _____ labour is Negative

#68. In the third of the three stages of production

#69. When marginal costs are below average total costs,

#70. A firm’s long-run average total cost curve is

#71. In the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience

#72. A firm’s long-run average total cost curve is

#73. Which of the following statements describes increasing returns to scale?

#74. The marginal cost for a firm of producing the 9th unit of output is ` 20. Average cost at the same level of output is ` 15. Which of the following must be true?

#75. Implicit cost can be defined as

#76. The most important function of an entrepreneur is to ____________.

#77. Economic costs of production differ from accounting costs of production because

#78. In figure below, possible reason why the average variable cost curve approaches the average total cost curve as output rises is: qno;78 pgno 3.55

#79. Marginal cost changes due to changes in —————

#67. Use the following diagram to answer the question given below it qno;67 pgno 3.53 The marginal physical product of the third unit of labour is _, the MP of the _ labour is Negative