SAHAY INSTITUTE

Producer’s Behaviour
Chapter - 04

Multiple Choice Questions

1 Function showing relationship between input and output is known as .…

(a) consumption function

(b) investment function
(c) production function
(d) cost function

2 What is ‘production’ in economics?

(a) Creation/Addition to the value of output

(b) Production of food grains
(c) Creation of services
(d) Manufacturing of goods

3 When total product falls, then

(a) average product is equal to zero

(b) marginal product is equal to zero
(c) marginal product is negative
(d) average product continues to rise

4 Average Product (AP) is at its maximum when

(a) MP>AP
(b) MP < AP
(c) MP=AP
(d) MP becomes negative

5 In which time period, all factors of production become variable and factors of
production change with the change in level of production?

(a) Long period

(b) Market period
(c) Short period
(d) All of these

6 Under the relationship between TP, MP and AP curves, MP becomes negative

when

(a) TP increases
(b) TP decreases
(c) TP remain constant
(d) TP becomes zero

7 If the Average Product (AP) of a labour is 30 units of outputs, then find total
product of 2 labour.

(a) 10 units of output

(b) 15 units of output
(c) 30 units of output
(d) 60 units of output

8 If the total product of 5 labour is 50 units of output and total product of 6

labour is 66 units of output, find Average Product (AP) of 6th unit of labour

(a) 10 units of output

(b) 11 units of output
(c) 50 units of output
(d) 16 units of output

9 .………. is the variable factor of production.

(a) Land
(b) Labour
(c) Factory
(d) Capital

10 In the first stage of law of variable proportions, total product increases at

an ..…

(a) decreasing rate

(b) increasing rate
(c) constant rate
(d) Both (a) and (b)

11 Increasing returns is applicable because of .…

(a) increased efficiency of variable factor

(b) fuller utilisation of fixed factor
C) indivisibility of factors
(d) Both (a) and (b)

12 Law of variable proportion is valid when. ..…

(a) at least one input is fixed and all other inputs are kept variable
(b) all factors are kept constant
(c) all inputs are varied in the same proportion
(d) None of the above

13 At the point of inflexion, the marginal product is ………..

(a) increasing
(b) decreasing
(c) maximum
(d) negative
14 Which of the stages is relevant for a firm which aims at maximum economic
efficiency in the law of variable proportion?

(a) Stage Stage I

(b) Stage II
(c) Stage III
(d) Stage IV

15 Which of the following curve is not ‘U’ shaped?

(a) AFC
(b) AVC
(c) MC
(d) AC

16 Payment made to outsiders for their goods and goods services are called

(a) Opportunity cost

(b) Real cost
(c) Explicit cost
(d) Implicit cost

17 When average cost curve is rising, then marginal cost ......

(a) Must be decreasing

(b) Must be constant
(c) Must be rising
(d) Any of these

18 As output increases, average fixed cost ...…

(a) remains constant

(b) starts falling
(c) starts rising
(d) None of these

19 Area under MC curve is .…

(a) total cost

(b) total fixed cost
(c) total variable cost
(d) None of these

20 Short-run supply curve of the firm is .…

(a) rising portion of MC curve

(b) rising portion of MC curve which lies above AVC curve
(C) rising portion of MC curve which lies above AFC curve
(d) entire MC curve

21 Cost function explain the relationship between

(a) income and expenditure

(b) input and output
(c) fixed cost and variable cost
(d) output and cost of production

22 .... are not zero at zero level of output.

(a) Fixed costs

(b) Variable costs
(c) Marginal costs
(d) Average variable costs

23 Average Revenue is equal to Average ....

Total Revenue
(a) Quantity Sold

Average Revenue
(b) 2

Total Revenue
(c) 100

Average Quantity
(d) Quantity Sold x2

24 When the firm is producing 3 tonnes of sugar, it receives total revenue of

₹ 24. Raising production to 4 tonnes, increases total revenue to ₹ 28. Thus,
marginal revenue is .…

(a) ₹4
(b) ₹8
(c) ₹28
(d) ₹52

25 When marginal revenue is zero ….…

(a) total revenue is also zero

(b) total revenue is the maximum
(c) total revenue is the minimum
(d) total revenue starts increasing sharply

26 Total revenue generated from sale of output of a firm can be calculated as

(a) TR =P x Q
(b) TR = AR x Q
(c) TR = ΣMR
(d) All of these

27 If AR is ₹ 40 per unit from the sale of 3 goods and it is ₹ 30 per unit from the
sale of 4 goods, Find the marginal revenue of 4th unit of goods.

(a) ₹10
(b) ₹30
C) ₹40
(d) 0

28 Marginal Revenue (MR) curve is a straight horizontal line in ...…

(a) perfectly competitive market

(b) monopolistic competitive market
(c) oligopoly market
(d) monopoly market

29 Average revenue of a monopolist firm is ......…

(a) always more than the marginal revenue
(b) always less than the marginal revenue
(c) equal to marginal revenue
(d) None of the above

30 Which of the following statement is true?

(a) For a monopoly firm, average revenue can be zero

(b) For a monopoly firm, marginal revenue can be zero or negative.
(c) For a monopoly firm, marginal revenue and average revenue are identical
(d) For a monopoly firm, marginal revenue and average revenue are positively
sloped.

31 In perfect competition,

(a) AR=MR
(b) AR=P
(O) TR is positively sloped straight line from origin
(d) All of the above

32 Under imperfect competition, slope of AR is generally ..... of slope of MR.

(a) half
(b) (b) twice
(c) equal
(d) one-third

33 In monopoly and monopolistic competitions, AR and MR curve are

downward sloping because the firms can sell more by

(a) increasing the price

(b) lowering the price
(c) keep in price constant
(d) All of the above

34 In the long-run, a firm in a perfectly competitive market earns .…..

(a) normal profit

(b) abnormal profit
(c) at least 15%% profit on capital employed
(d) None of the above

35 A perfectly competitive firm attains equilibrium at a point where .....

(a) MR is equal to MC and MC curve intersects MR curve from below

(b) MC is equal to MR
(c) MC is falling but is equal to AC
(d) Both (a) and (b)

36 The firm in perfect competition maximises profit by producing at the rate of

output where price equals to. ..…

(a) revenue cost

(b) marginal
(c) revenue
(d) marginal cost

37 In the process of production, fixed factors and variable factors are combined
in a particular ratio which gives equilibrium output. What is this ratio called?

(a) Factor output ratio

(b) Capital output ratio
(c) Ideal factor ratio
(d) None of these

38 ..... is a person who purchase factors of production (inputs) to convert them

into outputs.

(a) Buyers
(b) Consumer
(c) Producer
(d) Government

39 A firm break-even point occurs when ...... At this point, firm is earning zero
economic profit or normal profits. The market price passes through the
minimum point of AC curve.

(a) AR = AC
(b) TR = TC
(c) AR = AVC
(d) Both (a) and (b)

40 When MC is greater than MR after producer equilibrium, it means

(a) profit of firm

(b) producing more will lead to decline in profit
(c) no profit no loss
(d) firm enjoys economic efficiency

41 Which of the following is true about shape of marginal product and average
product curves?

(a) Average product is U shaped and marginal product is inverted ‘U’ shaped
(b) Marginal product is U shaped and average product is inverted ‘U’ shaped
(c) Both average product and marginal product are ‘U’ shaped
(d) Both average product and marginal product are inverted ‘U’ shaped

42 When total product is 100 units and units of variable factor are 5, average
product will be

(a) 20(
(b)95
(c) 105
(d) 500

43 A seller can sell 5 smart phones at a price of ₹ 12,000 each. If he sell 6th unit
of mobile, his marginal revenue will be 10,500. The Price/AR of the 6th unit will
be

(a) ₹11,000
(b) ₹ 12,000
(c) ₹11,700
(d) ₹11,750