Here are 50 non-repetitive multiple-choice questions (MCQs) with answers on the topic of “Cost”. For CUET, CBSE board, IB Board, AP economics, IGCSE
1. What does the term “opportunity cost” refer to in economics?
- a) The explicit monetary cost of a good or service.
- b) The cost of the next best alternative foregone when a choice is made.
- c) The total expenses incurred by a business.
- d) The fixed costs of production.
Answer: b) The cost of the next best alternative is foregone when a choice is made.
2. Which of the following is an example of a variable cost for a manufacturing company?
- a) Rent for factory space.
- b) Depreciation on machinery.
- c) Cost of raw materials.
- d) Salaries of permanent employees.
Answer: c) Cost of raw materials.
3. What type of cost remains constant on a per-unit basis as the level of production changes?
- a) Fixed cost.
- b) Marginal cost.
- c) Variable cost.
- d) Average cost.
Answer: a) Fixed cost.
4. In economics, the long-run average cost curve shows the relationship between:
- a) Total cost and total output in the short run.
- b) Total cost and total output in the long run.
- c) Average cost and total output in the short run.
- d) Average cost and total output in the long run.
Answer: d) Average cost and total output in the long run.
5. Which of the following best describes economies of scale?
- a) When the average cost of production increases as output increases.
- b) When the average cost of production remains constant as output increases.
- c) When the average cost of production decreases as output increases.
- d) When the total cost of production decreases as output decreases.
Answer: c) When the average cost of production decreases as output increases.
6. What is the formula for calculating total cost?
- a) Total Cost = Fixed Cost + Variable Cost.
- b) Total Cost = Average Cost x Quantity Produced.
- c) Total Cost = Marginal Cost / Quantity Produced.
- d) Total Cost = Opportunity Cost x Quantity Produced.
Answer: a) Total Cost = Fixed Cost + Variable Cost.
7. In the short run, which cost can be altered or adjusted by a firm?
- a) Fixed cost.
- b) Marginal cost.
- c) Variable cost.
- d) Average cost.
Answer: c) Variable cost.
8. Which of the following is an example of a sunk cost?
- a) The cost of purchasing new machinery.
- b) The cost of hiring additional employees.
- c) The cost of research and development for a new product.
- d) The cost of a non-refundable deposit on a lease.
Answer: d) The cost of a non-refundable deposit on a lease.
9. Which of the following is NOT a characteristic of a perfectly competitive market?
- a) Many buyers and sellers.
- b) Homogeneous or identical products.
- c) Limited barriers to entry.
- d) Significant control over market price by individual firms.
Answer: d) Significant control over market price by individual firms.
10. Which cost is relevant for short-term decision-making?
- a) Sunk cost.
- b) Average cost.
- c) Opportunity cost.
- d) Marginal cost.
Answer: d) Marginal cost.
11. In the long run, a firm should shut down if:
- a) Total revenue is less than total cost.
- b) Total revenue is greater than average total cost.
- c) Total revenue is less than the average variable cost.
- d) Total revenue is greater than marginal cost.
Answer: a) Total revenue is less than total cost.
12. What is the relationship between marginal cost (MC) and average total cost (ATC) when MC is below ATC?
- a) MC is rising, and ATC is falling.
- b) MC is falling, and ATC is rising.
- c) MC is equal to ATC.
- d) MC has no relationship with ATC.
Answer: b) MC is falling, and ATC is rising.
13. The minimum point on the average variable cost (AVC) curve corresponds to:
- a) The shutdown point.
- b) The profit-maximizing level of output.
- c) The point of diminishing returns.
- d) The break-even point.
Answer: a) The shutdown point.
14. What is the relationship between total cost and total variable cost?
- a) Total cost is always equal to total variable cost.
- b) Total cost is greater than total variable cost.
- c) Total cost is less than total variable cost.
- d) Total cost and total variable cost are unrelated.
Answer: b) Total cost is greater than total variable cost.
15. When marginal cost is below average variable cost, what is happening to average variable cost?
- a) It is rising.
- b) It is falling.
- c) It is constant.
- d) It is equal to marginal cost.
Answer: b) It is falling.
16. Which of the following best describes a normal profit in economics?
- a) Earning no profit.
- b) Earning a profit that covers both explicit and implicit costs.
- c) Earning a profit that covers only explicit costs.
- d) Earning a profit that exceeds the opportunity cost of capital.
Answer: b) Earning a profit that covers both explicit and implicit costs.
17. Which cost is associated with the use of a firm’s own resources, such as owner’s time and capital?
- a) Explicit cost.
- b) Accounting cost.
- c) Implicit cost.
- d) Opportunity cost.
Answer: c) Implicit cost.
18. Which of the following is an example of a fixed cost for a restaurant?
- a) Cost of ingredients.
- b) Monthly rent for the building.
- c) Hourly wages of servers.
- d) Electricity bill.
Answer: b) Monthly rent for the building.
19. What does the term “marginal cost” represent?
- a) The total cost of producing one additional unit.
- b) The cost incurred when producing the first unit.
- c) The average cost of all units produced.
- d) The total variable cost of production.
Answer: a) The total cost of producing one additional unit.
20. Which of the following statements is true regarding a natural monopoly?
- a) It is characterized by many firms competing in the market.
- b) It is often regulated by government authorities.
- c) It typically leads to lower prices for consumers.
- d) It results in perfect competition.
Answer: b) It is often regulated by government authorities.
21. In a perfectly competitive market, what is the shape of the demand curve for an individual firm?
- a) Horizontal (perfectly elastic).
- b) Upward-sloping.
- c) Downward-sloping.
- d) Vertical (perfectly inelastic).
Answer: a) Horizontal (perfectly elastic).
22. If a firm’s marginal cost is greater than its marginal revenue, what should the firm do to maximize profit?
- a) Increase production.
- b) Decrease production.
- c) Keep production unchanged.
- d) Shut down in the short run.
Answer: b) Decrease production.
23. Which of the following is an example of a short-run cost?
- a) Rent on a long-term lease.
- b) The cost of hiring temporary workers.
- c) The purchase of a new factory.
- d) The cost of raw materials for a year.
Answer: b) The cost of hiring temporary workers.
24. What is the relationship between average variable cost (AVC) and marginal cost (MC) when AVC is at its minimum point?
- a) AVC is rising, and MC is falling.
- b) AVC is falling, and MC is rising.
- c) AVC is equal to MC.
- d) AVC has no relationship with MC.
Answer: c) AVC is equal to MC.
25. In the long run, a perfectly competitive firm will produce at the level where:
- a) Marginal cost equals marginal revenue.
- b) Marginal cost equals average total cost.
- c) Average variable cost is minimized.
- d) Average total cost is maximized.
Answer: b) Marginal cost equals average total cost.
26. Which of the following is NOT a characteristic of monopolistic competition?
- a) Many buyers and sellers.
- b) Product differentiation.
- c) Perfect information.
- d) Low barriers to entry.
Answer: c) Perfect information.
27. Which of the following is an example of an explicit cost for a business?
- a) The owner’s foregone salary.
- b) The cost of raw materials.
- c) The opportunity cost of using existing machinery.
- d) The interest on a business loan.
Answer: d) The interest on a business loan.
28. When a firm is producing at its shutdown point, what is its economic profit?
- a) Zero.
- b) Positive.
- c) Negative.
- d) Indeterminate.
Answer: c) Negative.
29. Which of the following statements is true about a monopoly?
- a) It has many close substitutes for its product.
- b) It faces a perfectly elastic demand curve.
- c) It can earn economic profits in the long run.
- d) It is characterized by a large number of firms.
Answer: c) It can earn economic profits in the long run.
30. Which of the following is a characteristic of perfect competition?
- a) Product differentiation.
- b) Barriers to entry.
- c) A downward-sloping demand curve for the individual firm.
- d) A large number of sellers.
Answer: d) A large number of sellers.
31. In economics, the term “total cost” refers to:
- a) The cost of all resources used in production.
- b) The cost of producing one additional unit of output.
- c) The cost of fixed inputs.
- d) The total revenue earned by a firm.
Answer: a) The cost of all resources used in production.
32. In the long run, a perfectly competitive firm will:
- a) Produce where marginal cost equals average total cost.
- b) Produce where marginal cost equals marginal revenue.
- c) Produce where average variable cost equals marginal cost.
- d) Produce where average total cost is minimized.
Answer: d) Produce where average total cost is minimized.
33. What is the shape of the average total cost (ATC) curve when it is declining as output increases?
- a) U-shaped.
- b) Upward-sloping.
- c) Horizontal.
- d) Downward-sloping.
Answer: d) Downward-sloping.
34. Which of the following is NOT considered a cost of production in economics?
- a) Explicit costs.
- b) Implicit costs.
- c) Economic costs.
- d) Accounting profits.
Answer: d) Accounting profits.
35. Which cost includes both explicit and implicit costs?
- a) Total cost.
- b) Accounting cost.
- c) Sunk cost.
- d) Variable cost.
Answer: a) Total cost.
36. When should a firm shut down in the short run?
- a) When total revenue is less than total cost.
- b) When total revenue is greater than the average total cost.
- c) When total revenue is less than the average variable cost.
- d) When total revenue is greater than marginal cost.
Answer: c) When total revenue is less than the average variable cost.
37. In a monopolistic market, which of the following is true?
- a) There are many firms selling identical products.
- b) There are significant barriers to entry.
- c) Firms are price takers.
- d) Firms earn zero economic profit in the long run.
Answer: b) There are significant barriers to entry.
38. What is the primary goal of a profit-maximizing firm in the short run?
- a) Maximizing total revenue.
- b) Maximizing market share.
- c) Maximizing economic profit.
- d) Minimizing production costs.
Answer: c) Maximizing economic profit.
39. In the long run, what happens to a firm’s economic profit in perfect competition?
- a) It becomes zero.
- b) It becomes negative.
- c) It increases continuously.
- d) It remains constant.
Answer: a) It becomes zero.
40. Which of the following is a characteristic of a perfectly competitive market?
- a) Firms can set their own prices.
- b) There are significant barriers to entry.
- c) Products are differentiated.
- d) Firms are price takers.
Answer: d) Firms are price takers.
41. When does a firm in a perfectly competitive market maximize its profit?
- a) When marginal cost equals marginal revenue.
- b) When the average total cost is minimized.
- c) When total revenue exceeds the total cost.
- d) When price exceeds the average variable cost.
Answer: a) When marginal cost equals marginal revenue.
42. What is the primary difference between explicit and implicit costs?
- a) Explicit costs are opportunity costs, while implicit costs are out-of-pocket expenses.
- b) Explicit costs are incurred in the short run, while implicit costs are incurred in the long run.
- c) Explicit costs are variable costs, while implicit costs are fixed costs.
- d) Explicit costs are historical costs, while implicit costs are future costs.
Answer: a) Explicit costs are opportunity costs, while implicit costs are out-of-pocket expenses.
43. When marginal cost (MC) is less than average total cost (ATC), what is happening to ATC?
- a) It is rising.
- b) It is falling.
- c) It is constant.
- d) It is equal to MC.
Answer: b) It is falling.
44. What is the relationship between marginal cost (MC) and average total cost (ATC) when MC is above ATC?
- a) MC is rising, and ATC is falling.
- b) MC is falling, and ATC is rising.
- c) MC is equal to ATC.
- d) MC has no relationship with ATC.
Answer: a) MC is rising, and ATC is falling.
45. In a monopoly, what is the shape of the demand curve?
- a) Perfectly elastic (horizontal).
- b) Perfectly inelastic (vertical).
- c) Downward-sloping.
- d) Upward-sloping.
Answer: c) Downward-sloping.
46. When is a firm operating at its production efficiency?
- a) When it produces at the minimum point of the average variable cost curve.
- b) When it produces at the minimum point of the average total cost curve.
- c) When it produces at the minimum point of the marginal cost curve.
- d) When it produces at the shutdown point.
Answer: b) When it produces at the minimum point of the average total cost curve.
47. What is the main characteristic of a natural monopoly?
- a) Many firms compete in the market.
- b) High barriers to entry.
- c) Perfect information.
- d) A downward-sloping demand curve.
Answer: b) High barriers to entry.
48. Which of the following is a characteristic of oligopoly?
- a) Many firms sell identical products.
- b) Firms are price takers.
- c) A small number of large firms dominate the market.
- d) No barriers to entry.
Answer: c) A small number of large firms dominate the market.
49. What is the relationship between average total cost (ATC) and marginal cost (MC) when ATC is at its minimum point?
- a) ATC is rising, and MC is falling.
- b) ATC is falling, and MC is rising.
- c) ATC is equal to MC.
- d) ATC has no relationship with MC.
Answer: c) ATC is equal to MC.
50. In economics, what is the primary function of profit?
- a) To cover explicit costs.
- b) To cover implicit costs.
- c) To ensure the long-term survival of the firm.
- d) To signal the efficient allocation of resources.
Answer: d) To signal the efficient allocation of resources.