# Top 40 Questions of Cost

Given below are 40 important MCQs from the cost chapter that will help you prepare for CUET exams, class exams, and various entrance exams. These questions are framed from many sources:

1. What is the primary concern of cost analysis in microeconomics?
A) Profit maximization
B) Revenue maximization
C) Cost minimization
D) Utility maximization
2. Which of the following is a fixed cost?
A) Wages of temporary workers
B) Raw materials
C) Rent for factory building
D) Electricity bills
Answer: C) Rent for factory building
3. What is the shape of the total cost (TC) curve when there are only fixed costs?
A) U-shaped
B) Horizontal
C) Vertical
D) Upward sloping
4. The cost that varies with the level of production is known as:
A) Fixed cost
B) Sunk cost
C) Variable cost
D) Average cost
5. If a firm produces 100 units of a product and incurs a total cost of \$1,000, what is the average cost per unit?
A) \$10
B) \$100
C) \$1
D) \$50
6. Marginal cost is defined as the change in:
A) Total cost divided by change in quantity
B) Total quantity divided by change in cost
C) Total revenue divided by change in quantity
D) Total quantity divided by change in revenue
Answer: A) Total cost divided by change in quantity
7. If a firm’s total cost is \$2,000 and it produces 100 units, what is the average cost?
A) \$20
B) \$200
C) \$2
D) \$10
8. Economies of scale refer to a situation where:
A) Average cost increases as output increases
B) Average cost decreases as output increases
C) Marginal cost remains constant
D) Fixed costs are constant
Answer: B) Average cost decreases as output increases
9. If a firm’s total cost is \$1,500 and its fixed cost is \$500, what is its variable cost?
A) \$500
B) \$1,000
C) \$2,000
D) \$1,500
10. What is the relationship between average variable cost (AVC) and marginal cost (MC) when AVC is at its minimum?
A) AVC < MC B) AVC > MC
C) AVC = MC
D) There is no relationship between AVC and MC
11. Which of the following is a short-run cost?
A) Rent for factory building
B) Salaries of permanent employees
C) Cost of raw materials
Answer: C) Cost of raw materials
12. Which cost is incurred even when no output is produced in the short run?
A) Total cost
B) Average cost
C) Variable cost
D) Fixed cost
13. If a firm’s total cost is \$5,000 and it produces 200 units, what is the average fixed cost?
A) \$25
B) \$50
C) \$10
D) \$15
14. In the long run, all costs are considered:
A) Sunk costs
B) Variable costs
C) Fixed costs
D) Opportunity costs
15. When marginal cost is greater than average total cost, what happens to average total cost as output increases?
A) It decreases
B) It remains constant
C) It increases
D) It depends on the level of fixed costs
16. If a firm’s total cost is \$3,000 and it produces 100 units, what is the average variable cost if the fixed cost is \$1,000?
A) \$10
B) \$20
C) \$30
D) \$15
17. What is the formula for calculating marginal cost (MC)?
A) MC = ΔTC / ΔQ
B) MC = TC / Q
C) MC = ΔQ / ΔTC
D) MC = Q / TC
Answer: A) MC = ΔTC / ΔQ
18. If a firm produces 150 units at a total cost of \$2,500 and then produces 160 units at a total cost of \$2,800, what is the marginal cost of producing the 160th unit?
A) \$5
B) \$20
C) \$30
D) \$300
19. Which cost concept is relevant for decision-making in the short run?
A) Total cost
B) Average cost
C) Sunk cost
D) Marginal cost
20. If a firm produces 50 units at a total cost of \$1,000 and then produces 60 more units at an additional cost of \$800, what is the average cost of producing the first 50 units?
A) \$10
B) \$20
C) \$12
D) \$16
21. Which of the following is an example of an explicit cost?
A) The owner’s salary in a sole proprietorship
B) The opportunity cost of using the owner’s personal car for business purposes
C) The cost of renting office space
D) The cost of using idle machinery
Answer: C) The cost of renting office space
22. In the long run, all inputs are considered:
A) Fixed
B) Variable
C) Semi-variable
D) Irrelevant
23. Which cost is associated with the sacrifice of the next best alternative when making a decision?
A) Explicit cost
B) Implicit cost
C) Opportunity cost
D) Sunk cost
24. If a firm produces 200 units at a total cost of \$3,000 and then produces 250 units at an additional cost of \$2,500, what is the average cost of producing the first 200 units?
A) \$15
B) \$10
C) \$12.5
D) \$7.5
25. When marginal cost is less than average total cost, what happens to the average total cost as output increases?
A) It decreases
B) It remains constant
C) It increases
D) It fluctuates randomly
26. Which of the following costs is not relevant for decision-making in the long run?
A) Sunk cost
B) Fixed cost
C) Variable cost
D) Marginal cost
27. What is the relationship between average variable cost (AVC) and average total cost (ATC) when ATC is at its minimum?
A) AVC < ATC B) AVC > ATC
C) AVC = ATC
D) There is no relationship between AVC and ATC
28. If a firm’s total cost is \$4,000 and its variable cost is \$3,000, what is its fixed cost?
A) \$1,000
B) \$2,000
C) \$3,000
D) \$4,000
29. Which of the following costs is incurred when a firm decides to shut down in the short run?
A) Fixed cost
B) Sunk cost
C) Variable cost
D) Opportunity cost
30. Which of the following statements is true regarding average fixed cost (AFC)?
A) AFC decreases as output increases
B) AFC remains constant as output increases
C) AFC increases as output increases
D) AFC is always equal to the marginal cost
Answer: A) AFC decreases as output increases
31. If a firm’s total cost is \$6,000 and its variable cost is \$4,000, what is its average fixed cost when it produces 200 units?
A) \$20
B) \$10
C) \$30
D) \$15
32. Which of the following cost concepts is relevant for pricing decisions in the short run?
A) Sunk cost
B) Average total cost
C) Marginal cost
D) Average fixed cost
33. If a firm produces 500 units at a total cost of \$8,000 and then produces 600 units at an additional cost of \$3,000, what is the marginal cost of producing the 600th unit?
A) \$5
B) \$20
C) \$10
D) \$3
34. Which of the following costs is considered when calculating accounting profit?
A) Explicit cost only
B) Implicit cost only
C) Both explicit and implicit costs
D) Neither explicit nor implicit costs
35. In the long run, a firm can adjust its:
A) Fixed costs
B) Variable costs
C) Total costs
D) All of the above
Answer: D) All of the above
36. Which of the following is an example of a variable cost?
A) Rent for factory building
B) Salaries of permanent employees
C) Cost of raw materials
D) Property taxes
Answer: C) Cost of raw materials
37. If a firm produces 100 units at a total cost of \$2,000 and then produces 120 units at an additional cost of \$1,800, what is the average cost of producing the first 100 units?
A) \$20
B) \$25
C) \$18
D) \$15
38. Which of the following costs is most likely to be considered a fixed cost in the short run?
A) Labor cost
B) Raw material cost
C) Lease cost for machinery
D) Cost of electricity
Answer: C) Lease cost for machinery
39. The concept of diminishing marginal returns is closely related to which cost?
A) Fixed cost
B) Variable cost
C) Marginal cost
D) Average total cost