1. Under the law of variable proportions, the average and the marginal product of the variable factor would ultimately
a. Become equal
b. Decrease
c. Become constant
d. Increase
Ans: b. Decrease
2. Returns to scale is an
a. Shirt-run phenomenon
b. long-term phenomenon
c. Timeless phenomenon
d. Direction less phenomenon
Ans: (b) long-term phenomenon
3. Diminishing returns occur when a firm
a. Uses more of one input while holding all other inputs constant
b. Use too much of all inputs
c. Does not utilize its input properly
d. Reduce the use of all inputs simultaneously
Ans: (a) Use more of one input while holding all other inputs constant
4. A characteristic of a production function whereby the marginal product of factor falls as the amount of the factor increases where all other factors are held constant
a. Diminishing marginal product
b. increases marginal product
c. Constant marginal product
d. None of the above
Ans: (a) Diminishing marginal product
5. The amount of revenue remaining for the owners of a firm after all factors of production have been compensated
a. Normal profit
b. Supernormal profit
c. Surplus profits
d. Economics profits
Ans: (a) Normal profit
6. The law of diminishing returns according to the modern perception is
a. Applicable to agriculture
b. Applicable to industry
c. Applicable to service
d. Applicable to all fields of production
Ans: (d) Applicable to all fields of production
7. The law of variable proportion comes into being when
a. All factors are fixed
b. All factors are variables
c. There are some fixed factors and a variables factor
d. there are only two variables factors
Ans: (c) There are some fixed factors and a variables factor
8. The law diminishing returns
a. Is an economic law of great importance
b. Does not concern the entrepreneur in deciding how to combine his factors of production
c. Merely expresses the technical relationship between output and different amount of factors employed
d. Shows how output varies as factors are combined in different proportions
Ans: (d) Shows how output varies as factors are combined in different proportions
9. Exhaustible natural and mineral resources is an important reason for
a. Increase returns to scale
b. Constant returns to scale
c. Decrease returns to scale
d. law of variable proportional
Ans: (c) Decrease returns to scale
10. Under the law of variable proportions the stage in which MP is negative and TP is declining relates to
a. I Stage of production
b. II Stage of production
c. III Stage of production.
d. None of the above
Ans: (c) III Stage of production
11. “AP is at maximum at the beginning of this stage and MP is zero at the end of this stage “
This stage relates to
a. I stage of production
b. II stage of production
c. III stage of production
d. All the above
Ans: (b) II stage of production
12. Which of the stage is relevant for a firm that aims at the maximum output in the short run
a. Stage I
b. Stage II
c. Stage III
d. Beyond Stage III
Ans. (b) Stage II
13. Which of the following conditions is (are) regarded as necessary before the law of diminishing returns to a factor can be said to operate
1. Other factors are held constant
2. The stage of technical knowledge does not change
3. All units of the variable factor are homogeneous
a. 1,2,3 are correct
b. .1,2 only are correct
c. 2,3 only are correct
d. 1 only is correct
Ans: (a) 1,2,3 are correct
14. Why do increasing returns occur in the initial stage of production?
a. Indivisibility of fixed factor
b. Increased in the specialization of the variable factor.
c. Indivisibility of fixed factor and the specialization of the variable factor.
d. Technical progress
Ans: (c) Indivisibility of fixed factor and the specialization of the variable factor.
15. The difference between returns of factors and returns o scale is
a. Size of inputs
b. Size of outputs
c. Variable of inputs in the production function
d. all the above
Ans: c. Variable of inputs in the production function
16. Increasing returns to scale can be explained in terms of
a. Optimum factor proportion
b. Internal economies of scale
c. Fixed scale of plans
d. Marketing
Ans: (b) Internal economies of scale
17. Consider the following combination of inputs and outputs
| Labour | Capital | Output |
| 5 6 7 8 9 | 10 12 14 16 18 | 1 2 3 4 5 |
| 10 | 20 | 6 |
This production technology satisfies
a. Increasing returns to scale
b. Diminishing returns to scale
c. Constant returns to scale
d. Increasing returns initially, followed by decreasing returns to scale
Ans. (c) Constant returns to scale
18. Diminishing marginal returns to factor arise essentially because
a. The quantity (or quantities) of some factor or factor) is (or are) relatively fixed
b. The quantity of that factor is fixed
c. Quantities of all factors are fixed
d. There is government control over production
Ans: (a) The quantity (or quantities) of some factor or factor) is (or are) relatively fixed
19. The law of diminishing returns operates due to
I. Scarcity of factor
II. Heterogeneous
III. Defective combination of a factor of production
IV. Factor of production being an imperfect substitute
Of the statement
a. I alone am correct
b. I and II are correct
c. I, II, and III are correct
d. All the correct
Ans: All the correct
20. Which of the following condition relating to the marginal revenue products of a factor tends to diminish as input of the factor increase?
a. Technical impact of diminishing marginal returns
b. Diminishing rate of substitutability of a factor
c. Diminishing marginal utility of factor
d. Tendency of the marginal utility of factor
select the correct answer using the codes given below
a. 1 and 2
b. 1 and 3
c. 2,3 and 4
d. 1,2,3 and 4
Ans. 2,3 and 4