CA Foundation

THEORY OF PRODUCTION & COST

Practice Questions
1. The term production in economics means- (b) By transporting goods from one place
(a) creation of a physical product only, to another
(b) rendering of a service only (c) By making things available when they
(c) creation of economic utilities are required
(d) none of the above (d) All the above

2. Which of the following is considered 7. Which of the following is not a feature of

production in economics? land
(a) Singing a song in a birthday party (a) Free gift
(b) Run for fun (b) Limited in quantity
(c) Giving tuitions (c) Mobile factor
(d) Helping an old man to cross road (d) Indestructible

3. Making use of personal skill of doctors, 8. The factor of production which has no
lawyers, actors, etc. results in the creation reserve price is-
of- (a) land (b) labour
(a) form utility (c) capital (d) all the above
(b) place utility
(c) personal/ service utility 9. Which of the following can be considered
(d) time utility as labour in economics-
(a) Singing for pleasure
4. Making available materials at times when (b) A teacher teaching his own child at
they are normally not available is called home
conferring of utility of- (c) Looking after, a sick friend
(a) place (b) time (d) A teacher teaching in school
(c) form (d) service
10. The supply of land is-
5. Which of the following statements (a) Unlimited (b) Increased
incorrect? (c) Decreased (d) Limited
(a) Man cannot create matter.
(b) Production is an activity of making 11. Land in economics means-
something material only. (a) Material and Non-material goods
(c) Production can be defined as addition (b) Minerals under the surface of earth
of utility. (c) All natural resources available to man
(d) Production is any economic utility for producing wealth
which is directed towards the (d) All the above
satisfaction of the wants of the people.
12. Labour is-
6. Economic utilities may be created or added (a) Active factor
(a) By changing the form of raw materials (b) Passive factor
into finished goods (c) Alternative factor
(d) None of the above
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13. Which factor loses its value of it cannot 21. Goodwill, patent rights, etc. are examples
find a purchaser today- of-
(a) Land (b) Labour (a) Tangible Capital (b) Real Capital
(c) Capital (d) All the above (c) Intangible Capital (d) Human Capital

14. Supply curve of labour is-
(a) upward sloping (b) horizontal
(c) backward bending (d) vertical
15. Income effect when wage rises means
(a) work hours rise
(b) work hours fall
(c) work hours remain constant
(d) work hours first fall and then rise
16. Which of the following statements is not
true?
(a) Capital is a produced means a
production.
(b) Capital is a man made instruments of
production.
(c) Capital is a primary factor of
production.
(d) Machine tools, factories, dams, canals,
etc. are examples of capital.
17. Tools, machines, etc. are included in-
capital
(a) circulating capital (b) fixed capital
(c) sunk capital (d) human capital
18. The capital which belongs to the society as
a whole is called-
(a) Individual Capital (b) Human Capital
(c) Social Capital (d) Floating Capital
19. Raw material is an example of-
(a) Circulating Capital (b) Fixed Capital
(c) Tangible Capital (d) Real Capital
20. Which capital includes education training,
skill, ability?
(a) Human Capital (b) Individual Capital
(c) Social Capital (d) Real Capital
22. Which of the following statements is true?
(a) Capital Formation involves production
of more capital goods.
(b) Capital Formation is also called
investment.
(c) To accumulate capital goods, some
current consumption is to be sacrificed.
(d) All the above
23. Surplus of production over consumption
in an economy in a year is called-
(a) Capital (b) Capital formation
(c) Stock (d) Savings
24. The third stage of capital formation is-
(a) creation of savings
(b) mobilization of savings
(c) distribution of savings
(d) investment of savings
25. With an increase in income-
(a) the propensity to consume increases
(b) the propensity y to save increases
(c) the propensity to consume remains
constant
(d) the propensity to save falls
26. A_______ country has greater ability to
save.
(a) poor
(b) developing
(c) rich
(d) under developed
27. An individual's saving level depends
upon-
(a) ability to save
(b) willingness to save
(c) both (a) & (b)
(d) only (a)
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28. The factor which mobilize land labour and (b) Prof. Joseph A. Schumpeter
capital; combines them in the right (c) Prof. Paul Samuelson
proportion and then organizes the (d) Dr. Alfred Marshall
production activity is –
(a) Owner (b) Labour 36. Which of the following statement is
(c) Manger (d) Entrepreneur incorrect?
(a) Mobilisation of savings done through
29. The reward of all factors of production is network of banking and other financial
usually predetermined (pre-fixed) except- institutions.
(a) Land (b) Labour (b) Land lacks geographical mobility but
(c) Capital (d) Entrepreneur has occupational mobility.
(c) Entrepreneur is also called the
30. The reward of an entrepreneur for his organizer, the manager or the risk
efforts and risk-taking is- taker.
(a) Interest (b) Profit/Loss (d) Labour can be stored.
(c) Rent (d) Wages
37. Labour is________
31. The reward of capital is- (a) Human factor
(a) Rent (b) Interest (b) Perishable
(c) Wages (d) Profit (c) inseparable from labour
(d) All the above
32. The reward of an entrepreneur i.e. profit is-
(a) pre-determined income 38. Leather in a shoe factory is_______
(b) residual income (a) Fixed capital
(c) constant income (b) Sunk capital
(d) none of the above (c) Floating Capital
(d) Circulating capital
33. The risks which can be anticipated and can
be insured against are called- 39. _________Cannot be stored.
(a) Insurable risks (a) Land (b) Labour
(b) Non-Insurable risks (c) Capital (d) Both (a) & (b)
(c) Unforeseeable risks
(d) None of the above 40. Capital that can be used for several
purposes or by several industries is_____
34. The risks like change in demand for a (a) Working capital (b) Social capital
commodity, the cost structure, fashion, (c) Floating capital (d) Human capital
technological, etc. which an entrepreneur
has to bear are called- 41. Addition to the stock of capital good sin a
(a) Uncertainties (b) Insurable risks country means________
(c) Foreseeable risks (d) Both (a) and (c) (a) Capital reduction
(b) Investment
35. According to________ innovations (c) Capital formation
introduced by an entrepreneur give rise to' (d) Both (b) & (c)
profits.
(a) Prof. FH. Knight
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42. Find the odd out________ 48. In the short period there is no change in
(a) Capital is man-made _________ factors.
(b) All capital is wealth (a) fixed (b) variable
(c) Capital is durable (c) human (d) physical
(d) Mobilisation of savings
49. In the______ period all factors are variable.
43. Consider the following groups of items: (a) short (b) long
(i) Factory buildings (c) market (d) secular
(ii) Plant and Machinery
(iii) Stocks of raw materials 50. In its original for Cobb-Douglas
(iv) Wage bills production function applies to-
Which of these are known as working (a) individual manufacturing firm
capital? (b) individual firm
(a) (i) and (ii) (b) (iii) and (iv) (c) whole of manufacturing in US
(c) (i), (ii) and (iii) (d) (i), (iii) and (iv) (d) None of the above

44. The production function means 51. Cobb-Dauglas production function

relationship between revealed that the increase in the
(a) Cost of input manufacturing production was
(b) Cost of output contributed by labour and capital
(c) Physical input to physical output respectively by
(d) Wages of profit (a) 3/4th and 1/4th (b) 1/4th and 3/4th
(c) 2/3rd and 1/3rd (d) None of the above
45. A production function is an expression of
________ relation between inputs and 52. Cobb-Douglas production-
outputs. (a) is linear
(a) monetary (b) economic (b) is homogeneous
(c) quantitative (d) qualitative (c) shows constant returns to scale
(d) all the above
46. A short run production function is one in
which- 53. Cobb-Douglas production function
(a) at least one factor is fixed exhibits______ returns to scale.
(b) all factors are fixed (a) increasing (b) diminishing
(c) all factors are variable (c) Constant (d) negative
(d) at least one factor is variable
(
54. 50 x = f 5L , 4k )
47. Technically efficient combinations of
inputs of those which- 50 x = f ( 6 , 4k )
L

(a) minimizes wastage The above equations shows that-

(b) maximizes profits (a) One factor is fixed and another variable
(c) minimises cost (b) Both factors are fixed
(d) maximises revenue (c) Both factors are variable
(d) Both factors are semi-variable
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55. The main difference between the short 61. The change in TP resulting from the
period/run and the long period/run is employment of an additional unit of a
that - variable factor is called-
(a) in the short period all inputs are fixed, (a) Total Product (b) Marginal Product
while in the long period all inputs are (c) Average Product (d) All the above
variable.
(b) in the short run at least one input is 62. The average product of a variable input
fixed can be described as-
(c) in the short run firm varies the (a) total product divided by the number of
quantities of all inputs units of variable input
(d) in the long run, the firm uses the (b) additional output resulting from
existing plant capacity employment of additional unit of
variable factor
56. The law of variable proportions is a law of (c) the total quantity of good produced
production which takes place in the- with all input
(a) market period (b) short run (d) None of the above
(c) long run (d) very long period
63. TP of variable factor is –
57. All but one are the assumptions of the law i.  MP
of variable proportions. Which one is not? ii. TPn – TPn-1
(a) There is only one factor which is iii. APxL (units of variable factor)
variable TP
(b) All units of variable factor are iv.
L
homogeneous (a) only (i)
(c) State of technology remains constant (b) only (i) and (iii)
(d) Applies in long run (c) only (ii)
(d) only (ii) and (iv)
58. When there is a fixed factor and a variable
factor, then the law would be- 64. Initially TP curve increases at an-
(a) law of increasing returns to scale (a) increasing rate
(b) law of constant returns to scale (b) diminishing rate
(c) law of decreasing returns to scale (c) constant rate
(d) law of variable proportions (d) maximum rate

59. The total quantity of goods and services
produced by a firm with the given inputs
during a specified period of time is called-
(a) Total Product (b) Average Product
(c) Marginal Product (d) Labour Product
60. The amount of output produced per unit of
variable factor employed is called-
(a) Total Product (b) Average Product
(c) Marginal Product (d) Labour Product
65. As more units of variable factor is
employed it will-
(a) always increase the TP
(b) always decrease the TP
(c) not always increase the TP
(d) always result in constant TP
66. As long as TP is positive, AP is-
(a) negative (b) constant
(c) positive (d) falling
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67. AP curve is- 76. When MP is negative-

(a) U-Shaped (a) TP and AP are falling
(b) S-Shaped (b) TP and AP are rising
(c) inverted U-Shaped (c) TP and AP are constant
(d) inverted S-Shaped (d) Only TP is falling

68. MP curve is the slope of_____ at each point. 77. When MP is at a maximum-
(a) AP curve (b) TP curve (a) AP = MP and TP is rising
(c) TR curve (d) AR curve (b) AP < MP and TP is rising
(c) AP > MP and TP is rising
69. When TP is maximum, MP is – (a) AP and TP are falling
(a) rising (b) falling
(c) zero (d) negative 78. If MP goes on increasing, it should be
understood that law of_____ is applying.
70. When TP is falling, MP is - (a) increasing returns
(a) zero (b) rising (b) decreasing returns
(c) negative (d) falling (c) constant returns
(d) diminishing returns
71. MP curve is -
(a) U- shaped 79. If MP goes on decreasing it should be
(b) S- shaped understood that law of______ is in
(c) inverted U - shaped operation.
(d) inverted S - shaped (a) decreasing cost (b) constant cost
(c) average cost (d) increasing cost
72. When TP is maximum, the slope of TP
curve is 80. When MP is falling, TP will increase at the
(a) rising (b) falling _______rate.
(c) constant (d) zero (a) constant (b) increasing
(c) diminishing (d) normal
73. TP is the area under the
(a) AP curve (b) AR curve 81. When average product is maximum,
(c) MP curve (d) MR curve marginal product is equal to-
(a) total product (b) zero.
74. MP is positive so long as TP is- (c) one (d) average product
(a) increasing (b) decreasing.
(c) maximum (d) negative 82. MP curve cuts AP curve from-
(a) its top (b) below
75. When TP is rising- (c) both (a) and (b) (d) neither (a) nor (b)
(a) AP and MP are rising
(b) AP and MP are falling 83. The marginal product is maximum at
(c) AP and MP may be either rising or the_________.
falling (a) equilibrium point (b) inflection point
(d) Only MP is either rising or falling (c) focal point (d) optimum point
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84. The stage of production where the 90. When AP and MP curves are rising MP
marginal product is greater than the curve rises-
average product is-. (a) at a faster rate (b) at a lower rate
(a) stage of increasing returns (c) at normal rate (d) at constant rate
(b) stage of diminishing returns
(c) stage of negative returns 91. When AP and MP curves are falling MP
(d) stage of constant returns curve falls-
(a) at a faster rate (b) at a lower rate
85. Which of the following statements reveal (c) at normal rate (d) at constant rate
the diminishing returns?
(a) The MP of a factor is constant 92. When AP and MP curves are rising, AP
(b) The MP of a factor is positive and rising curve__________.
(c) The MP of a factor is falling and (a) lies above the MP curve
negative (b) lies below the MP curve
(d) The MP of a factor is positive but falling (c) co-inside with the MP curve
(d) none of the above
86. The MP curve is above the AP curve when
the average product- 93. The reason for increasing returns to factor
(a) is constant (b) is falling is-
(c) is increasing (d) is negative (a) Indivisibility of fixed factor
(b) Division of labour
87. The actual stage of production under the (c) Specialisation
law of variable proportions is- (d) All the above
(a) stage of increasing returns
(b) stage of diminishing returns 94. When the ideal factor ratio is violated in
(c) stage of negative returns short run-
(d) stage of either increasing or (a) diminishing returns to a factor set in
diminishing returns (b) MP of the variable factor starts falling
increases at a diminishing
88. Reason for rise in both AP and MP curves (c) TP increases at diminishing rate
is- (d) All the above
(a) under utilization of the fixed factor
(b) under utilization of the variable factor 95. AP increases so long as-
(c) over utilization of the fixed factor (a) MP > AP (b) MP < AP
(d) overutilization of the variable factor (c) MP = AP (d) MP is zero

89. Reason for fall in both AP and MP Curves 96. AP may continue to_______ even when MP
is- starts declining.
(a) under utilization of the fixed factor (a) rise (b) fall
(b) over utilization of the fixed factor (c) remain constant (d) fluctuate
(c) under utilization of the variable factor
(d) full utilization of the variable factor 97. MP curve cuts AP curve from its top, this
means-
(a) MP < AP (b) MP > AP
(c) MP is rising (d) MP is zero
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98. Increasing MP implies TP is increasing at- Use the following data to answer
(a) increasing rate (b) constant rate questions 106 and 107
(c) diminishing rate (d) fluctuating rate Units of 1 2 3 4 5 6
Labour
99. MP of labour becoming negative implies- Employed:
(a) excessive employment MP 20 22 18 16 14 6
(b) disguised unemployment TP is zero at zero level of employment
(c) over exploitation of the fixed factor
(d) all the above 106. The total product when 5 units of labour
are employed is-
100. TP starts declining only when- (a) 60 (b) 76 (c) 90 (d) 96
(a) MP is rising (b) MP is falling
(c) MP is negative (d) MP is constant 107. The average product of 3rd unit of labour
is-
101. MP of the variable factor may be zero or (a) 21 (b) 20 (c) 19 (d) 18
negative, but AP continue to be- Use the following data to answer
(a) constant (b) positive questions 108 and 109
(c) negative (d) zero Units of Labour 1 2 3 4 5
Employed:
102. AP decreases when- AP 50 45 40 35 30
(a) MP = AP (b) MP > AP TP is zero at zero level of employment
(c) MP < AP (d) None of the above
Use the following information of answer 108. The total product of 3 units of labour is-
questions 103 to 105 (a) 30 (b) 50 (c) 90 (d) 120
Given – Qx = f(5 , k )
Where - Qx = output of good 'x' 109. The marginal product of 5th unit of labour
L = Labour is-
K = Capital (a) 10 (b) 20 (c) 30 (d) 40
(i) 60x = f (5L , 4 k ) Use the following data to answer
questions 110 and 112
(ii) 65x = f (6L , 4 k )
Hours of Total Marginal
Labour Output Output
103. In the above equations the fixed A factor is- 0 - -
(a) Labour (b) Capital 1 300 300
(c) Output (c) both(a) & (b) 2 - 240
3 720 -
104. The MP of variable factor is-
(a) 4 (b) 5 (c) 6 (d) 7 110. What is the total product when 2 hours of
labour are employed?
105. In the equation (i) the AP of the variable (a) 160 (b) 200 (c) 360 (d) 540
factor is-
(a) 12 units (b) 14 (c) 10 (d) 16 111. What is the average product of the first 2
hours of labour?
(a) 250 (b) 260 (c) 270 (d) 280
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112. What is the marginal product of the 3rd 118. If all inputs are increased in the same
hour of labour? proportion, then it is a case of-
(a) 160 (b) 180 (c) 120 (d) 200 (i) Short run production function
(ii) Long run production function
113. Find the odd one out- (iii) Laws of Variable Proportions
(a) law of diminishing returns to factor (iv) Laws of Returns to Scale
(b) law of returns to scale (a) (i) and (ii) only
(c) cost function (b) (ii) and (iii) only
(d) production function (c) (i) and (iv) only
(d) (ii) and (iv) only
114. The production process described below
exhibits 119. In the long run-
Numbers Output (a) all inputs are fixed
of Labours (b) one input is fixed and one input is
0 0 variable
1 20
(c) all inputs are variable
2 50
(d) two inputs are variable and one input is
3 90
(a) increasing marginal product of labour fixed
(b) increasing returns to scale
(c) diminishing marginal product of 120. Law of increasing returns to scale will
labour apply if-
(d) constant marginal product of labour (a) economies exceed the diseconomies
(b) economies and diseconomies are equal
115. Diminishing marginal returns for the first (c) diseconomies exceed the economies
four doses of inputs when all factors of (d) in all the above situations
production are increased in the same
proportion is revealed by the total product 121. Internal economies accrue when-
sequence (a) an industry develops
(a) 50, 50, 50, 50 (b) 50, 100, 150,200 (b) an economy grows
(c) 50, 90, 120, 140 (d) 50, 110, 180, 260 (c) foreign trade develops
(d) a firm expands production in long run
116. The behaviour of output in response to a
change in the scale is studied in the- 122. External economies accrue when-
(a) Market Period (b) Short Period (a) a firm expands
(c) Long Period (d) Very Short Period (b) an individual progress
(c) an industry expands
117. In the theory of production the long runs is (d) trade expands
defined as the period of time in which-
(a) All factors can be varied 123. If we have constant returns to scale and we
(b) No factors can be varied increase both labour and capital by 10%
(c) Some factors are fixed but other can be output will also increase by-
varied. (a) 20% (b) 30% (c) 10% the (d) 5%
(d) None of these
124. Find the odd one out-
(a) All factors are variable
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(b) A firm can experience returns to scale by a firm when it expands production
(c) Management can be reorganized leads to-
(d) Law of variable proportions (a) economies of scale
(b) real economies
125. Economies of scale means- (c) diseconomies of scale
(a) reduction in per unit cost of production (d) both (a) and (b)
(b) reduction in per unit cost of
distribution 131. ________economies are common to all the
(c) addition to the per unit cost of firms in an industry and shared by many
production firms or industries.
(d) reduction in the total cost of production (a) internal (b) external
(c) real (d) all the above
126. Linear Homogeneous Production Function
is- 132. _________economies are related to an
(a) Increasing Returns to Scale individual firm's own cost reduction effort.
(b) Constant Returns to Scale (a) internal (b) external
(c) Diminishing Returns to Scale (c) real (d) all the above
(d) Negative Returns to Scale
133. _______means all those factors which raise
127. Internal economies relate to the cost of production per unit when
(a) Marketing economies production is expanded by a firm beyond
(b) Financial economies optimal capacity.
(c) Managerial economies (a) External economies
(d) All the above (b) Internal economies
(c) External diseconomies
128. In which of the following cases there is less (d) Internal diseconomies
than proportionate increase in output
when all factors are increase- 134. Economies of localization, cheaper inputs,
(a) Constant returns to scale growth of ancillary industries, etc. are
(b) Diminishing returns to scale examples of-h
(c) Increasing returns to scale (a) Internal economies
(d) Increasing as well as diminishing (b) Internal diseconomies
returns to scale (c) External economies
(d) External diseconomies
129. Problems like difficulties in management
lack of supervision, higher input cost, etc. 135. _______ economies can be of long term in
due to large scale production leads to- nature
(a) economies of scale (a) nature (b) internal
(b) real economies of scale (c) production (d) real
(c) diseconomies of scale
(d) Both (b) and (c) 136. _______shows all the input combinations
that will produce the same level of output.
130. Benefits like improved organization, (a) Isoquant (b) Isocost lines
division of labour and specialization, (c) Expansion Path (d) None of the above
better supervision and control, etc. enjoyed
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137. Isoquant is also called as_________
(a) production indifference Curve
(b) is-product curve
(c) equal-product curve
(d) all the above
138. All of the following are the proper- ties of
isoquant except-
(a) An isoquant is downward sloping
curve
(b) A higher isoquant represents a higher
level of output
(c) Two isoquants can intersect each other
(d) Isoquants are convex to the origin
139. An isoquant slopes-
(a) downward to the left
(b) downward to the right
(c) upward to the left
(d) upward to the right
140. In the context of input-output
relation__________ means same output
produced from different combinations of
inputs.
(a) law of variable proportions
(b) ridge lines
(c) law of constant returns
(d) isoquant
141. A higher isoquants denotes a -
(a) higher level of output
(b) lower level of output
(c) same level of output
(d) none of the above
142. An isoquant is________ indifference curve
(a) buyer's (b) producer's
(c) trader's (d) economy's
143. The rate of which one factor of production
can be substituted for the other is known
as-
(a) marginal rate of substitution
(b) marginal opportunity cost
(c) marginal rate of technical substitution
(d) marginal cost
144. The slope is iso-product curve show-
(a) MRSxy
(b) MRTSxy
(c) elasticity of an iso-product curve
(d) none of the above
145. An isoquant is-
(a) downward sloping and concave to
origin
(b) downward sloping and convex to
origin
(c) downward sloping straight line curve
(d) horizontal straight line curve
146. The convexity of isoquants is due to
the______ MRTSxy
(a) increasing (b) constant
(c) diminishing (d) none of the above
147. Convexity of an isoquant implies____
slope.
(a) diminishing (b) increasing
(c) constant (d) none of the above
148. If MRTSxy is constant then an isoquant
is______
(a) downward sloping and convex to
origin
(b) downward sloping straight line curve
(c) right angled curve
(d) downward sloping and concave to
origin
149. If MRTSxy is increasing then an isoquant
is_______
(a) downward sloping and convex to
origin
(b) downward sloping straight line curve
(c) right angled curve
(d) downward sloping and concave to
origin
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150. A right-angled isoquant denotes that

the_____
(a) two factors are perfect substitutes of
each other
(b) two factors are imperfect substitutes of
each other
(c) two factors are perfect complements of
each other
(d) position between perfect substitutes
and perfect complements

151. The MRTSxy is constant if two factors

are_________ of each other
(a) perfect substitutes
(b) perfect complements
(c) imperfect substitutes
(d) imperfect complements

152. MRTSxy =
y MPx
(a) (b)
x MPy
y MPx
(c) = (d) all the above
x MPy

153. Increasing MRTSxy could happen only

when the __________ operate.
(a) law of increasing returns
(b) law of diminishing returns
(c) law of constant returns
(d) law of negative returns

154. Which of the following isoquant indicates

155. At a point near the right hand below the
that the two factors 'X' an ‘Y’ are imperfect
corner of isoquant curve, the MRTSxy of
substitutes of each other?
factor ‘X’ for factor ‘Y’ is –
(a) very high (b) very low
(c) zero (d) neither high nor low

156. Convexity of an isoquant denotes that the

two factors are________ of each other.
(a) perfect complements
(b) imperfect complements
(c) perfect substitute
(d) imperfect substitutes
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157. In order to increase output, if both inputs (c) Straight line sloping down-wards
must be increased in fixed proportion, it towards right
follows that both the inputs are_______ of (d) Horizontal straight line
each other.
(a) perfect substitutes 163. The slope of iso-cost line with factor ‘Y’ on
(b) perfect complements the vertical axis and factor ‘X’ on the
(c) imperfect substitutes horizontal axis is -
(d) imperfect complements P x y P
(a) y (b) (c) (d) x
Px y x Py
158. _______is the locus of various
combinations of two inputs which a 164. At equilibrium point, a particular isoquant
producer can buy with the given outlay is________ to iso-cost line
and the prices of two inputs. (a) tangent (b) perpendicular
(a) Isocost line (c) parallels (d) concave
(b) Opportunity cost line
(c) Production line 165. Where the slope of isoquant = the slope of
(d) Profit line isocost line, it is the_________ combination
of inputs.
159. Isocost line is also known as_____ (a) maximum cost (b) least cost
(a) outlay line (c) balanced cost (d) cost-production
(b) price line
(c) producer's budget line y MPx Px
(d) all the above 166. MRTSxy = = = where,
x MPy Py
(a) consumer is in equilibrium
160. If the expenditure to be done on purchase
(b) consumer is not in equilibrium
of factors increases, the prices of both
(c) producer is in equilibrium
inputs remaining the same, the firm's
(d) producer is not in equilibrium
isocost line will-
(a) shift downward (b) shift upward
167. Where the iso-cost line is tangent to an
(c) remain the same (d) none of the above
isoquant-
(a) equal amount of factors give equal
161. The slope of the iso-cost line can change
output
when the outlay remains the same but the
(b) the prices of the factors are equal
price of -
(c) the ratio of prices of the two factors
(a) only one input change
equal MRTS
(b) both the inputs change
(a) none of the above
(c) both inputs remain unchanged
(d) Both (a) and (b)
168. All but one of the following statements are
correct. Find the incorrect statement.
162. The iso-cost line in production
(a) The word isoquant means equal
optimization is_________
quantities.
(a) Vertical straight line
(b) The slope of isoquant is called MRTS.
(b) Straight line sloping upward towards
right
CA Foundation

(c) The producer is at equilibrium where

P
MRTSxy = x
Py
(d) A set of isoquant curves is called isocost
map.

169. If there is perfect substitution between two

factors of production the shape of isoquant
is-
(a) linear (b) non-linear
(c) positively sloped (d) right angled

170. Condition for the producer's equilibrium

is-
(a) Isoquant should be tangent to the
isocost line
(b) At tangency point, isoquant should be
convex to origin
MPx MPy
(c) =
Px Py
(d) All the above

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