ECO402 (MICROECONOMICS)

Which of the following cost always decline as output increase?

• Average cost
• Fixed cost
• Average fixed cost
• Average variable cost

Which of the following cost always increase as output increase?

• Average cost
• Fixed cost
• Average fixed cost
• Average variable cost

What will be the effect on consumer expenditures for the purchase of price elastic goods?

• Increase when price increases

• Decrease when price increases
• Decrease when price decreases
• Do not change when price increase or decrease

The increase in output due to additional worker is called:

• Total product
• Average product
• Marginal product
• Factor product

When two goods are perfect substitute to each other then the marginal rate of substitution for them
will be:

• Constant
• Positive
• Negative
• Zero

Suppose a firm produces 10 units of output, its average variable cost is 100 and average total cost is 250.
What will be its average fixed cost?

• 150
• 350
• 200
• 100

Individual demand curve can be drawn from _______ curve:

• Engel
• Indifference
• Price consumption
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 • Income consumption

Ali knows average total cost and average variable cost for a given level of output, which of the following
cost cannot be determined from the information?

• Marginal cost Or Can Determine AFC, VC and FC

• Average fixed cost
• Variable cost
• Fixed cost

Which of the following the correct formula of Marginal cost?

• Delta TC + Delta Q
• Delta TC – Delta Q
• Delta TC x Delta Q
• Delta TC / Delta Q

When the average product is decreasing, marginal product will:

• Increase
• Exceeds average product
• Be equal to average product
• Be less than average product

Marginal product crosses the horizontal axis (is equal to zero) at the point where:

• Average product is maximized

• Total product is maximized
• Diminishing returns sets in
• All of the options are true

Which of the following is included in economic depreciation to make it equal to the user cost of capitals?

• Interest Rate * Value of Capital

• Interest Rate / Value of Capital
• Interest Rate + Value of Capital
• Interest Rate – Value of Capital

The additional satisfaction a consumer gains from consuming one more unit of a good is called as:

• Marginal Utility
• Total Utility
• Average Utility
• Consumer Satisfaction

Amount of one good that a consumer gives up to obtain more of another good is knows as marginal rate
of:
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 • Utility
• Substitution
• Disutility
• Technical Substitution

The difference between the economic cost and accounting costs of a firm are:

• The accountant’s fees

• The corporate taxes on profits
• The opportunity costs of the factors of production that the firm owns
• The sunk cost incurred by the firm

If the cross elasticity of demand is -2:

• The products are substitute

• The products are inferior goods
• The products are complements
• All of the given options are true

The Paasche index calculate the amount of money at current-year prices that an individual requires to
purchase a current bundle of goods and services:

• Divided by the cost of purchasing the same bundle in the current year
• Divided by the cost of purchasing the same bundle in the base year
• Multiplied by the cost of purchasing the same bundle in the current year
• Multiplied by the cost of purchasing the same bundle in the base year

Marginal rate of substitution represents the slope of _____ curve:

• Supply
• Demand
• Isoquant
• Indifference

Moving down along a marginal utility curve for apples, the:

• Consumer’s well-being increases

• Total utility of apple decreases
• Marginal utility of apple increases
• Marginal utility of apple decreases

The rate at which one input unit can be reduced per additional unit of the other input, while holding
output constant, is measured by the:

• Marginal rate of substitution

• Marginal rate of technical substitution
• Slope of isocost curve
• Average product of the input

If two goods are perfect substitute of each other, then the shape of an indifference curve is:
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 • L-Shaped
• Convex
• Straight line
• Concave

The situation of decreasing returns to scale is described by which of the following situation?

• Decreasing efficiency with large size

• Isoquants become farther apart
• Reduction of entrepreneurial abilities
• All of these

Income elasticity of demand for a superior good is always:

• Negative
• Between 0 and 1
• Between 1 and 2
• Greater than 1

In the long run, which of the following is considered a variable cost?

• Expenditures for wages

• Expenditures for raw materials
• Expenditures for capital machinery and equipment
• All of the above options

In a long run, if a firm is facing higher marginal cost than the average cost; then certainly per unit total
cost will:

• Rise
• Fall
• Remain Constant
• Be the minimum level

Since tea and coffee are considered as substitutes, the cross-price elasticity of demand for tea and
coffee will be:

• Positive
• Zero
• Infinity
• Negative

When the actual market price is lower than the equilibrium price in goods markets then there will be:

• Surplus
• Shortage
• Further decrease in place
• Neither shortage nor surplus

When the actual market price is higher than the equilibrium price in goods markets then there will be:
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 • Surplus
• Shortage
• Further decrease in place
• Neither shortage nor surplus

Cost-output elasticity can be calculated as:

• MC/AC
• AC/MC
• (AC)(MC)
• (AC)2(MC)

Consumers can maximize their satisfaction at a point where marginal rate of substitution is:

• Not equal to the ratio of the prices

• Equal to the ratio of the prices
• Greater than the ratio of the prices
• Less than the ratio of the prices

The slope of the total product curve is called:

• Average product
• Marginal product
• Marginal rate of substitution
• Marginal rate of technical substitution

Aslam consumes more of a good due to increase in his income. For Aslam, this good is categorized as:

• Normal
• Public
• Giffen
• Inferior

Incremental cost is the same concept as __________ cost.

• Average
• Marginal
• Fixed
• Variable

Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the
horizontal axis:

• The budget line will become steeper.

• The budget line will become flatter.
• The slope of the budget line will not change.
• The slope of the budget line will change, but in an indeterminate way.

Which of the following is a positive statement?

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 • When the price of a good goes up, consumers buy less of it.
• When the price of a good goes up, firms produce more of it.
• When the Federal government sells bonds, interest rates rise and private investment is reduced.
• All of the given options.

If X is a normal good, a rise in money income will shift the:

• Supply curve for X to the left

• Demand curve for X to the left
• Supply curve for X to the right
• Demand curve for X to the right

If prices are held constant, an increase in income will:

• Shift budget line inwards

• Shift budget line outwards
• Rotate budget line outer towards X-axis
• Rotate budget line outer towards Y-axis

Income elasticity of demand for an inferior good is always:

• Negative
• Between 0 and 1
• Between 1 and 2
• Greater than 1

Which of the following statement is correct?

• Butter and Margarine are examples of complement goods

• Car and Petrol are substitute goods
• Butter and Margarine are examples of substitute goods
• Tea and Coffee are example of complement goods

Which branch of economics deals with the behavior of individual consumers, firms and investors?

• Mathematical Economics
• Microeconomics
• Macroeconomics
• Development Economics

A production function in which the inputs are perfectly substitutable would have isoquants that are:

• Convex to the origin

• L shaped
• Linear
• Concave to the origin

The short run is:

• Less than a year

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 • Three years
• However long it takes to produce the planned output
• A time period in which at least one input is fixed

Which of the following is an assumption regarding people's preferences in the theory of consumer
behavior?

• Preferences are complete

• Preferences are transitive
• Consumers prefer more of a good to less
• All of the above

When the cost of labor increases then it will lead to shift in:

• Supply curve towards right

• Demand curve towards right
• Supply curve towards left
• Demand curve towards left

If a % change in quantity demanded for milk is less than the % change in price of milk then the price
elasticity of demand for milk is:

• Elastic
• Inelastic
• Unitary elastic
• Perfectly elastic

A firm never operates:

• At the minimum of its ATC curve

• At the minimum of its AVC curve
• On the downward-sloping portion of its ATC curve
• On the downward-sloping portion of its AVC curve

Cross price elasticity of demand for the complements will always be:

• Zero
• Infinity
• Positive
• Negative

Cross price elasticity of demand for the substitutes will always be:

• Zero
• Infinity
• Positive
• Negative

Suppose the income of consumer raises by 100% and prices also rise by the same percentage, the
budget line of the consumer will:
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 • Remain same
• Shift outwards
• Shift inwards
• Rotate towards X-axis

The marginal rate of technical substitution is equal to the:

• Slope of the total product curve

• Change in output minus the change in labor
• Change in output divided by the change in labor
• Ratio of the marginal products of the inputs

The marginal product of labor is equal to the:

• Slope of the total product curve

• Change in output minus the change in labor
• Change in output divided by the change in labor
• Ratio of the marginal products of the inputs

Which of the following is correct?

• Real Price = (CPI base year + CPI current year) * Nominal price current year
• Real Price = (CPI base year / CPI current year) * Real price current year
• Real Price = (CPI base year / CPI current year) * Nominal price current year
• Real Price = (Nominal Price current year / CPI current year) * Nominal price current year

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the
variable cost?

• 200
• 5Q
• 5
• 5 + (200/Q)

Land is best described as:

• Produced factors of production

• Organizational resources
• Physical and mental abilities of people
• Naturally occurring resource

Two firms, each producing different goods, can achieve a greater output than one firm producing both
goods with the same inputs. We can conclude that the production process involves:

• Diseconomies of scope
• Economies of scale
• Decreasing returns to scale
• Increasing returns to scale

Suppose a market were currently at equilibrium. A rightward shift of the supply curve would cause a(n)

• Increase in both price and quantity

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 • Decrease in both price and quantity
• Increase in price but a decrease in quantity
• Decrease in price but an increase in quantity

The change in the quantity demanded of a good resulting from a change in relative price with the level
of satisfaction held constant is called the______ effect.

• Giffen
• Real price
• Income
• Substitution

If we take the production function and hold the level of output constant, allowing the amounts of capital
and labor to vary, the curve that is traced out is called:

• The average product

• an isoquant
• the total product
• the marginal product
• none of the above

The supply curve for a competitive firm is

• Its entire MC curves

• The upward-sloping portion of its MC curve
• Its MC curve above the minimum point of the AVC curve
• Its MC curve above the minimum point of the ATC curve

Use the following two statements to answer this question

1. All giffen goods are inferior goods
2. All inferior goods are giffen goods

• 1 and 2 are true

• 1 is true and 2 is false
• 1 is false and 2 is true
• 1 and 2 are false

Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results
in a ___ change in rice consumption, and the income effect leads to a ___ change in rice consumption.

• negative, negative
• negative, positive
• positive, negative
• positive, positive

Which of the following pairs of goods are NOT complements?

• Computer CPUs and computer monitors

• On-campus student housing and off-campus rental apartments
• Hockey sticks and hockey pucks
• all of the above
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 • none of the above

If the income-consumption path slopes down, then

• Both goods are inferior

• Both goods are normal
• One good is normal and the other good is inferior
• We can't tell anything about whether the goods are normal or inferior

Which of the following equations best represents the concept of constant returns to scale?

• 2Y= 2AF(2K, 2L)

• 3Y= AF(3K, 3L)
• 1/4Y= (AF/4)(4K, 4L)
• 5Y= [AF(K,L)]/ 5

The cost-output elasticity is used to measure:

• Economies of scope
• Economies of scale
• The curvature in the fixed cost curve
• Steepness of the production function

Assume that a firm spends Rs.1000 on two inputs, labor (l) graphed on the horizontal axis and capital (k)
graphed on the vertical axis. When the wage rate is Rs100 per hour and the rental cost of capital is RS
200.PER HOUR the equation of the isocost line is.

• 1000=200L+100k
• 1000=100L+200k
• 1000=200(L+K)
• 1000=10(100L+200K)

Which of the following measures Economies of scales?

• Cost-output elasticity
• Producer surplus
• Firms expansion path
• Slope of isocost line

The bowed-out shape of the production possibilities frontier indicates:

• The resources are perfectly adaptable to the production of two goods

• The resources are not perfectly adaptable to the production of two goods
• The constant opportunity cost
• Resources are used inefficiently

Any combination of goods inside the production possibility frontier (PPF) is.

• Productively efficient

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 • Consumer inefficient
• Productivity inefficient
• None of these all above

Any combination of goods on the production possibility frontier (PPF) is.

• Productively efficient
• Consumer inefficient
• Productivity inefficient
• None of these all above

When the actual market price exceeds the equilibrium market price there will be

• No purchase made
• No pressure on market
• Downward pressure on the market price
• Upward pressure on the market price

Amount of total money spent on a good having price p and quantity q can be obtained by which of the
following?

• PQ
• P/Q
• P+Q
• P-Q

The demand curve becomes vertical if the price elasticity of demand is:

• Zero
• Infinite
• Positive
• Negative

The demand curve becomes horizontal if the price elasticity of demand is:

• Zero
• Infinite
• Positive
• Negative

The demand curve becomes downward sloping if the price elasticity of demand is:

• Zero
• Infinite
• Positive
• Negative

Which of the following branch of economics deals with the observation of real economics fact?

• Normative economics
• Positive economics
• Welfare economics
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 • All of the give options

Suppose the price of meat remain constant. Which of the following will happen as a result of increase in
consumer’s income?

• Supply curve of meat shifts towards left

• Supply curve of meat shifts towards right
• Demand curve of meat shifts towards left
• Demand curve of meat shifts towards right

Which of the following is correct?

• Price elasticity of demand = % change in Quantity / % change in Price

• Price elasticity of demand = % change in Price / % change in Quantity
• Price elasticity of demand = change in Price / change in Demand
• Price elasticity of supply = % change in Price / % change in Demand

Suppose the price of meat remain constant. Which of the following will happen as a result of decrease in
consumer’s income?

• Supply curve of meat shifts towards left

• Supply curve of meat shifts towards right
• Demand curve of meat shifts towards left
• Demand curve of meat shifts towards right

Market equilibrium is a market state where:

• The supply in the market is equal to the demand in the market

• The supply in the market is greater than the demand in the market
• The supply in the market is not equal to the demand in the market
• The supply in the market is less than the demand in the market

The concepts such as: economic growth, inflation and unemployment are discussed in ___ economics:

• Micro
• Macro
• Financial
• Managerial

Which of the following is the mathematical representation of a theory used to make a prediction?

• Model
• Law
• Equation
• Relation

Coffee and tea are considered as substitutes, if price of tea increases then it will:

• Demand curve for tea towards right

• Demand curve for coffee towards right

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 • Supply curve for coffee towards left
• Demand curve for coffee towards left

When the cost of raw material increases then it will lead to shift in:

• Supply curve towards right

• Supply curve towards left
• Demand curve towards right
• Demand curve towards left

Which of the following will cause the demand curve for butter to shift the right?

• An increase in the price of the butter

• A decrease in consumer’s incomes
• An increase in the price of margarine (a substitute)
• All of the given options

Suppose a college professor opens an academy for the coaching classes. He hires three more teachers
with him. These teachers would most likely be which off the following factors of production?

• Money
• Capital
• Labor
• Entrepreneurship

Which of the following is (are) example(s) of perfectly competitive markets?

• Wheat
• WAPDA
• OPEC
• All of the given options

Suppose demand curve for good A has shifted to the right as a result of increase in price of good B. From
this we can infer that:

• A and B are substitutes

• A and B are complements
• A is used to produce good B
• B is used to produce good A

Suppose demand curve for good A has shifted to the left as a result of increase in price of good B. From
this we can infer that:

• A and B are substitutes

• A and B are complements
• A is used to produce good B
• B is used to produce good A

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When we study behavior of an individual of any society that means we are doing study of ____
economics.

• Macro
• Micro
• Financial
• Managerial

Which of the following characteristics differentiates competitive market from non-competitive market?

• The extent to which any firm can influence the price off the product
• The size of the firm in the market
• The annual sales made by the largest firms in the market
• The presence of government intervention

In a general behavior of the firms that when price of a product goes up firms produce more of it. Which
type of economic element statement is this?

• Normative
• Positive
• Welfare
• Negative

Suppose a college professor opens an academy for the coaching classes. He buys new tables and chairs
for the students. These tables and chairs would most likely be which of the following factors of
production?

• Labor
• Natural resources
• Capital
• Entrepreneurship

The supply curve slopes upward demonstrating that at:

• Higher prices firms will increase output

• Higher prices firms will decrease output
• Lower prices firms will increase output
• None of the given option

Since car and petrol are complements to each other, if price of petrol increases then it will shift the:

• Supply curve of car towards right

• Demand curve of car towards right
• Demand curve of car towards left

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 • Demand curve of petrol towards right

Entrepreneur gets its reward in shape of:

• Wages
• Interest
• Profit
• Both interest and profit

The expenditure that has been made and cannot be recovered is called:

• Opportunity cost
• Sunk cost
• Accounting cost
• Economic cost

Which of the following is correct mathematical formula of marginal cost?

• ∆TC+∆Q
• ∆TC*∆Q
• ∆TC-∆Q
• ∆TC/∆Q

When we buy a product at low price in one location and sell it at high price in another location, it is
known as ____ in economics.

• Arbitrage
• Market parameter
• Consumer theory
• Price discrimination

Labor minister addressed in the cabinet meeting that the minimum wage should not be increased
further. Which category his statement falls in?

• Positive
• Normative
• Negative
• None of the given option

Which of the following is not a factor of production?

• Labor
• Land
• Capital
• Demand

Responsiveness of percentage change in quantity demand of one good due to one percentage change in
price of another good is familiarly known as ____ elasticity of demand.

• Price
• Cross-price

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 • Point price
• income

Slope of income consumption curve for the normal good is:

• Positive
• Negative
• First positive, then negative
• First negative, then positive

Slope of income consumption curve for the inferior good is:

• Positive
• Negative
• First positive, then negative
• First negative, then positive

Which of the following pairs of goods are NOT substitutes?

• Tea and coffee

• Car and petrol
• Petrol and CNG
• Margarine and butter

When a consumer drinks one glass of water and then drinks another glass of water, his utility from
second glass is less than the utility from first glass. This is an example of Law of:

• Equal-marginal utility
• Increasing marginal cost
• Increasing marginal utility
• Diminishing marginal utility

Basic economic problem of every economy is:

• Unlimited wants and needs

• Abundant productive capital
• Abundant productive labor
• Unlimited material resources

If a % change in quantity demanded for bread is more than the % change in price of bread then the price
elasticity of demand for bread is:

• Elastic
• Inelastic
• Unitary elastic
• Perfectly elastic

When the cost of labor decreases then it will lead to shift in:

• Supply curve towards right

• Supply curve towards left
• Demand curve towards right
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 • Demand curve towards left

All the points on the indifference curve give equal level of:

• Utility
• Supply
• Demand
• Marginal utility

Income elasticity of demand for a normal good is always:

• Negative
• Between 0 and 1
• Between 1 and 2
• Greater than 1

An increase in consumer’s income, holding prices constant will:

• Change the slope of the budget line

• Shift the budget line rightward
• Shift the budget line rightward with its slope becoming flatter
• Shift the budget line leftward

The cost associated with opportunities that are forgone when a firm’s resources are not put to their
highest-value use is called:

• Opportunity cost
• Accounting cost
• Marginal cost
• Economic cost

Total utility increases at a decreasing rate are shown by negative slope of ____ curve.

• Demand
• Supply
• Total utility
• Marginal utility

The knowledge and skills acquired by worker through education and experience referred to us:

• Human capital
• Land
• Physical capital
• Entrepreneurship

For normal goods, Engel curve always have --------- slope?

• Positive
• Negative
• Infinite
• Perfectly inelastic

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Marginal utility measures:

• The slope of the indifference curve

• The additional satisfaction from consuming one more unit of a good
• The slope of the budget line
• The marginal rate of substitution

Which of the following explains the relationship between quantity demanded of a good and consumer
income?

• Engel curve
• Demand curve
• Indifference curve
• Price consumption curve

Which of the following is not true about indifference curve?

• Indifference curves always are convex to origin

• Indifference curves always are concave to origin
• Indifference curves cannot intersect each other
• Higher indifference curve shows high level of satisfaction

The indifference curve for left shoe and right shoe will be:

• Upward sloping
• Negatively sloped straight line
• L-shaped
• Vertical

When the average product is increasing, marginal product will:

• be zero
• exceed average product
• be equal to average product
• be less than average product

If the isoquants are straight lines, then:

• inputs have fixed costs at all use rates

• the marginal rate of technical substation of inputs is constant
• only one combination of inputs is possible
• these are constant to scale

Which of the following curves shows the all-possible combinations of inputs that yield the same output?

• Isoquant
• Demand
• Indifference
• supply

In a production process, all inputs are increased by 10%; but output increase less than 10%. This means
that the firm experiences;
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 • decreasing returns to scale
• constant returns to scale
• increasing returns to scale
• negative returns to scale

Which of the following will cause the demand curve for apple to shift to the left?

• Increase in taste and preferences

• Decrease in taste and preferences
• Increase in income
• Decrease in price of complements

A production function assumes a given?

• Technology
• Set of inputs prices
• Ratio of inputs prices
• Amount of output

__________ represents all combinations of market baskets that provide the same level of utility to
consumer:

• A budget lines
• An isoquant
• An indifference curves
• A demand curves

Which of the following statements is correct?

• Cross elasticity of demand for substitute is positive

• Cross elasticity of demand for substitute is negative
• Inferior elasticity of demand for inferior goods is positive
• Inferior elasticity of demand for normal goods is negative

Which of the following inputs are variable in the long run?

• Labor
• Capital and equipment
• Plant size
• All of these

Writing total output as Q, change in output as delta Q, total labor as L, and change in labor as delta L,
the marginal product of labor can be written algebraically as

• Delta Q* L.
• Q/L
• Delta L/Delta Q
• Delta Q/ Delta L

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Writing total output as Q, change in output as delta Q, total labor as L, and change in labor as delta L,
the average product of labor can be written algebraically as

• Delta Q* L.
• Q/L
• Delta L/Delta Q
• L/Q

Which of the following is not a determinant of a consumer's demand for a commodity?

• Income
• Population
• Prices of related goods
• Tastes

Which of the following concept of maximum output that a firm can produce for every specified
combination of inputs given the state of technology?

• Isocost line
• Isoquants
• Production function
• Production possibility curve

If a change in the price of one good has no effect on the quantity of demanded of another good, then
both goods are _______:

• Complement of each other

• Substitute of each other
• Inferior
• Independent

When the average product is equal to the marginal product, value of average product will be:

• Zero
• Maximum
• Minimum
• Equal to total product

The assumption of transitivity is violated when indifference curves ___________:

• Touch x-axis
• Becomes parallel
• Intersects each other
• Become perpendicular

Which of the following is the correct formula for Point elasticity of demand?

• Point elasticity of demand = (P/Q) * 100

• Point elasticity of demand = (P*Q) (1/slope)
• Point elasticity of demand = (P+Q) (1/slope)
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 • Point elasticity of demand = (P/Q) (1/slope)

Which of the following shows the relationship between the price of a good and the amount of that good
that consumers wants at that price?

• Supply curve
• Demand curve
• Supply schedule
• Production possibility frontier

Which of the following factors would not change the cost minimizing combinations of inputs (labor and
capital) required to produce a given amount of output?

• Marginal productivity of labor

• Marginal productivity of capital
• User cost of capital
• Marginal rate of substitution

The time period in which quantities of one or more production factors cannot be changed is called:

• Long run
• Short run
• Intermediate short run
• Very short run

Suppose a consumer is spending all of his income (budget) on food and clothing. Which of the following
factors will shift consumer’s budget line to the left?

• An increase in price of food

• A decrease in price of clothing
• An increase in price of clothing
• Decrease in consumer’s income

If price of inelastic good increases, then consumer expenditures will be:

• Increased
• Decreased
• Unchanged
• Zero

If a % change in quantity supplied divided by a % change in price is called:

• Income elasticity
• Price elasticity of supply
• Price elasticity of demand
• Cross elasticity of demand

If two indifference curves cross each other then:

• Consumers minimize their satisfaction

• The assumption of transitivity is violated
• The assumption of completeness is violated
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 • The assumption of diminishing marginal rate of substitution is violated

When the income of the consumers decreases then it will lead to shift in:

• Supply curve towards left

• Demand curve towards right
• Demand curve towards left
• Supply curve towards right

Indifference curves are convex to the origin because of?

• Transitivity of consumer preferences

• The assumption of a diminishing marginal rate of substitution
• The assumption that more is preferred to less
• The assumption of completeness.

Which of the following will be shape of Engel curve for inferior goods?

• Vertical
• Backward
• Horizontal
• Upward sloping

The magnitude of the slope of an indifference curve is:

• Called the marginal rate of substitution

• Equal to the ratio of total utility of the goods
• Always equal to the ratio of the prices of the goods
• All of the given options

Marginal rate of technical substitution (MRTS) of two perfectly substitutable input is always:

• Constant
• Decreasing
• Increasing
• Smaller

Indifference curve cannot slope upward due to the assumption of:

• More of any good is preferred to less

• Preferences are transitive
• Preferences are complete
• None of the given option

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When labor usage is at 12 units, output is 36 units. From this way we infer that:

• The marginal product of labor is 3

• The total product of labor is 1/3
• The average product of labor is 3
• None of the given options

Suppose Fauji Fertilizer Company Limited spends Rs 10000 on two inputs, labor (graphed on the
horizontal axis) and capital (graphed on the vertical axis) to produce 10 bags of urea. If the wage rate is
Rs. 100 per hour and the rental cost of capital is Rs. 200 per hour, then slope of the isocost line will be:

• -200
• -2
• -1/2
• -1/200

Which of the following mathematical expression is used for marginal rate of technical substitution
(MRTS)?

• MRTS = -change in capital / change in labor input

• MRTS = change in capital - change in labor input
• MRTS = change in capital + change in labor input
• MRTS = -change in capital * change in labor input

As the price of good “X” increase from Rs. 50 to Rs. 100, quantity demanded falls from 100 units to 80
units. Based upon this information, we can conclude that the demand for “X” is:

• Elastic
• Inelastic
• Unit inelastic
• Insufficient information for judgement

Inferior goods have negative income elasticity and luxury goods have:

• Income elasticity greater than one

• Income elasticity less than one
• Income elasticity less than 0
• Income elasticity equal to one

Assume the firm’s production process is experiencing increasing returns to scale over a broad range of
outputs. Long run arrange costs over the range of output will tend to:

• Increase
• Decline
• Remain constant
• Fall to a minimum and then rise

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Firm's short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding
the firm's returns to scale?

• The firm experiences increasing returns to scale.

• The firm experiences increasing, constant, and decreasing returns in that order.
• The firm experiences first decreasing, then increasing returns to scale.
• The short-run average cost curve reveals nothing regarding returns to scale.

When demand is inelastic, an increase in price will result in:

• An increase in quantity demand

• An increase in consumer expenditures
• A decrease in consumer expenditures
• No change in consumer expenditures

The ratio of the wage to rental cost of capital is called:

• Slope of isoquant
• Slope of isocost
• Slope of indifference curve
• Slope off production factor

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