# Cost 1 Marks Important Questions

## 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