Cost Important Questions
1. Explicit cost refers to the
(a) Actual expense of the firm to purchase or hire inputs
(b) Estimated value of inputs supplied by the owner
(c) Cost of inputs purchased plus the estimated value of own inputs used
(d) None of these
Ans. The actual expense of the firm to purchase or hire inputs
2. Implicit cost refers to the
(a) actual expenses of the firm to purchase or hire inputs
(b) the estimated value of inputs supplied by the owner
(c) cost of inputs purchased plus the estimated value of own inputs used
(d) none of these
Ans. the estimated value of inputs supplied by the owner
3. Which of these costs is not an explicit cost?
(a) Salary paid to a hired employee
(b) Interest on capital employed by the owner
(c) Office rent paid to the landlord
(d) All the three
Ans. Interest on capital employed by the owner
4. Which of these costs is not an implicit cost?
(a) Interest on capital employed by the owner
(b) Power bills
(c) Rent of own premises used in business
(d) None of these
Ans. Power bills
5. If the government cuts the excise duty, which cost will decrease?
(a) ATC (b) MC (c) both (d) None
Ans. Both
6. Economic cost includes
(a) Actual expenses
(b) Cost of inputs supplied by the owner
(c) Estimated normal profits
(d) All of the above
Ans. All of the above
7. Economic cost does not include
(a) Actual expenses
(b) Cost of inputs supplied by the owner
(c) Supernormal profits
(d) None of these
Ans. Supernormal profits
8. Which of the following statements is true?
(a) MC = TCn-TCn-1
(b) MC =
(c) MC =
(d) All of the above
Ans. All of the above
9. Total cost is the arithmetic sum of
(a) TFC and AFC
(b) TFC and TVC
(c) TVC and AVC
(d) AFC and AVC
Ans. TFC and TVC
10. Average cost is the arithmetic sum of
(a) TFC and AFC
(b) AFC and TVC
(c) AVC and MC
(d) AFC and AVC
Ans. AFC and AVC
11. TC increases with an increase in production due to the
(a) Increase in fixed costs
(b) Increase in variable costs
(c) Rising marginal costs
(d) None of these
Ans. Increase in variable costs
12. Marginal cost is defined as the
(a) Incremental cost when an additional unit of output is produced
(b) Unit cost of production when an additional unit is produced
(c) Sum of AFC and AVC
(d) Total cost divided by the number of units produced
Ans. The unit cost of production when an additional unit is produced
13. Which of the following statements is true?
(a) ATC = AFC – AVC
(b) TC = ATC + AVC
(c) AFC = ATC – AVC
(d) AVC = TVC – MC
Ans. AFC = ATC – AVC
14. AFC curve is:
(a) a rectangular hyperbola
(b) a U-shaped curve
(c) an inverted U-shaped curve
(d) parallel to X-axis
15. Which of the following is true for a U-shaped SAC curve?
(a) Law of diminishing marginal utility
(b) Law of variable proportions
(c) Law of diminishing marginal rate of technical substitution
(d) None of these
Ans. Law of variable proportions
16. Which of the following is a fixed cost?
(a) Expense on power and fuel
(b) Purchase of raw materials
(c) Salaries to the staff
(d) Daily wages
Ans. Salaries to the staff
17. Which of the following is a variable expense?
(a) Power expenses
(b) Interest on borrowed money
(c) MCD registration fee
(d) Rent of building
Ans. Power expenses
18. Which of the following is not a U- shaped curve?
(a) MC curve
(b) AC curve
(c) AVC curve
(d) AFC curve
Ans. AFC curve
19. Total variable cost curve is
(a) A reverse S-shaped curve
(b) A rectangular hyperbola curve
(c) A U- shaped curve
(d) None of these
Ans. A reverse S-shaped curve
20. TVC curve begins to ……………… with the onset of diminishing returns
(a) Rise at an increasing rate
(b) Rise at a decreasing rate
(c) Fall
(d) Rise
Ans. Rise at an increasing rate
21. TVC curve begins to ………… with the onset of increasing returns
(a) rise at an increasing rate
(b) rise at a decreasing rate
(c) fall rise
(d) rise
Ans. rise at a decreasing rate
22. Marginal cost curve is mostly
(a) Positively sloped
(b) Negatively sloped
(c) Parallel to X-axis
(d) Parallel to Y-axis
Ans. Positively sloped
23. Marginal cost can be equal to average variable cost when
(a) Average variable cost is falling
(b) Average variable cost is rising
(c) Average variable cost is minimum
(d) none
Ans. The average variable cost is minimum
24. Average and marginal cost of producing the 5th unit of output is ₹ 20 and ₹ 16 respectively. Hence, the average cost of producing the 4th unit of output will be
(a) 21 (b) 36 (c) 40 (d) None
Ans. 21