Average And Total Cost MCQs

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1.When a production function shows initially rising marginal product followed by diminishing marginal product as output grows, how will the marginal cost curve behave?

Remain constant (horizontal line)Continuously increaseContinuously decreaseForm a U-shaped curve

2.What happens to the average total cost when marginal cost is less than the average total cost?

The average fixed cost increasesThe average total cost decreasesThe average total cost increasesThe average total cost reaches its lowest pointNone of the above

3.Which of the following statements accurately describes cost behavior over time?

In the short term, every cost remains fixed.In the long term, all costs become variable.In the short term, all costs vary with production.In the long term, every cost is fixed.

4.How does the slope of a production function change when it demonstrates diminishing marginal returns?

It remains a straight lineIt grows steeper with more inputIt may take any of these formsIt gradually flattens as input quantity rises

5.Naila runs a small pottery business producing 1,000 items annually, each sold at Rs 100. The raw materials cost her Rs 20,000 for these 1,000 pieces. She has invested Rs 100,000 in the factory and equipment, half from her own savings and half borrowed at an interest rate of 10%. (Assume she could have alternatively invested her own money elsewhere at 10% interest.) Additionally, Naila has the option to work at another pottery factory earning Rs 40,000 per year. What is the economic profit from Naila's pottery business?

6.Economic profit is calculated by subtracting which type of costs from total revenue?

variable expensesimplicit expensesexplicit expensesmarginal expenses

7.At what output level is production most efficient by minimizing which cost?

average fixed expensesaverage overall costaverage variable expensescost of producing one additional unit

8.Over the long term, if a very small factory increases its production size, what is it most likely to encounter at the start?

9.What happens to the average total cost when marginal cost is equal to average total cost?

The average total cost is decreasingThe average total cost is increasingThe average total cost reaches its highest pointThe average total cost reaches its lowest point

10.In the short term, which of the following expenses varies directly with production levels?

11.When a production function shows diminishing marginal returns, how does the slope of the total cost curve change as output rises?

It remains a straight lineIt might take any of these formsIt grows steeper with higher output levelsIt becomes less steep as output expands

12.What happens to accounting profit compared to economic profit when there are implicit production costs?

Accounting profit is greater than economic profitEconomic profit remains zero at all timesEconomic profit surpasses accounting profitAccounting profit is always zeroEconomic profit and accounting profit are identical

13.Naila runs a small pottery business producing 1,000 pottery items annually, each sold for Rs 100. The raw materials cost her Rs 20,000 to produce these items. She has invested Rs 100,000 in her factory and equipment—half from her own savings and half borrowed at an interest rate of 10%. (Assume she could have alternatively invested her savings elsewhere at 10%.) Additionally, Naila has the option to work at another pottery factory earning Rs 40,000 per year. What is the accounting profit of Naila's pottery business?

14.Accounting profit is calculated by subtracting which type of costs from total revenue?

hidden or implicit expensescosts that vary with productionboth implicit and explicit expenses combinedexplicit or out-of-pocket coststhe additional cost of producing one more unit