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Indian Economy Quiz: Production, Cost and Revenue

  • 12 questions
  • 12 minutes
  • Difficulty: Medium
Useful for:SSCSSC CGLSSC CHSLBankingIBPSSBIRBIUPSC Civil ServicesState Exams
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About this quiz

This Indian Economy quiz on Production, Cost and Revenue puts 12 multiple-choice questions to you, the verified MCQs published with GK24's note on the topic, 2 of them asked in real previous-year papers. Every question carries a full explanation of why the correct option is right and why the other options are wrong, so you learn the fact behind the answer rather than the letter. Attempt it right after reading the note, keep to the timer, and use the explanations at the end to mark what needs another look. Sit it again before the exam as a quick revision of the topic.

Questions in this quiz

12 questions with answers and explanations

Q1.Indian EconomyEasy

Which of the following costs remains the same at every level of output in the short run?

  1. A.Total variable cost
  2. B.Total fixed cost
  3. C.Marginal cost
  4. D.Average cost
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Correct answer: B. Total fixed cost

Fixed cost is the payment for factors that cannot be varied in the short run, such as the rent of the factory building, insurance and the salary of permanent staff, and it has to be met even when output is zero, which is why it is also called supplementary or…

Q3.Indian EconomyMedium

The marginal cost curve cuts the average cost curve at

  1. A.the minimum point of the average cost curve
  2. B.the maximum point of the average cost curve
  3. C.the point where average cost equals average fixed cost
  4. D.no point at all
Show answer
Correct answer: A. the minimum point of the average cost curve

The reason is arithmetic rather than economic: so long as marginal cost is below average cost, each extra unit pulls the average down, and once marginal cost rises above average cost the average must rise, so the two can only be equal where the average is at its lowest.

Q4.Indian EconomyMedium

The law of variable proportions operates in which situation?

  1. A.When all factors of production are increased in the same proportion
  2. B.When one factor is varied and the others are held fixed
  3. C.Only in the long run
  4. D.Only when the firm is in equilibrium
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Correct answer: B. When one factor is varied and the others are held fixed

This is the defining condition of the short run, where plant and machinery cannot be changed, so only the proportion between the variable factor and the fixed factor alters.

Q6.Indian EconomyHard

A producer is in equilibrium when

  1. A.marginal revenue equals marginal cost and marginal cost is rising
  2. B.average revenue equals average fixed cost
  3. C.total revenue is at its maximum
  4. D.marginal cost is at its minimum
Show answer
Correct answer: A. marginal revenue equals marginal cost and marginal cost is rising

Both conditions are needed. If marginal revenue exceeds marginal cost the firm gains by producing more, and if marginal cost exceeds marginal revenue it gains by producing less, so profit can be highest only where they are equal; and the equality must occur on the rising part of the marginal…

Q7.Indian EconomyMedium

The break-even point of a firm is the level of output at which

  1. A.total revenue equals total cost
  2. B.total revenue equals total variable cost
  3. C.average cost is at its minimum
  4. D.marginal cost equals average fixed cost
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Correct answer: A. total revenue equals total cost

At that output the firm makes neither profit nor loss in the economic sense and earns only normal profit, since normal profit is already counted in cost as the reward of enterprise.

Q8.Indian EconomyEasy

Marginal cost is correctly defined as

  1. A.total cost divided by total output
  2. B.the change in total cost divided by the change in output
  3. C.total fixed cost divided by total output
  4. D.the change in total revenue divided by the change in output
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Correct answer: B. the change in total cost divided by the change in output

Marginal cost is the addition to total cost from producing one more unit, so for a one unit change it is simply the difference between successive values of total cost.

Q9.Indian EconomyMedium

Which of the following is an example of an implicit cost?

  1. A.Wages paid to hired workers
  2. B.Electricity bill of the factory
  3. C.Rent of the owner own building used by the firm
  4. D.Interest paid on a bank loan
Show answer
Correct answer: C. Rent of the owner own building used by the firm

An implicit cost is the imputed value of a factor supplied by the entrepreneur himself, for which no payment leaves the firm; the rent he could have earned by letting out his own premises, the interest on his own capital and the salary he could have drawn elsewhere are the…

Q10.Indian EconomyMedium

Returns to scale is a concept that applies to

  1. A.the short run, when one factor is fixed
  2. B.the long run, when all factors can be changed
  3. C.the market period, when output is fixed
  4. D.only to agriculture
Show answer
Correct answer: B. the long run, when all factors can be changed

Returns to scale asks what happens to output when every input is increased in the same proportion, which is possible only in the long run, when the firm can build a bigger plant as well as hire more labour.

Q11.Indian EconomyAsked in: Madhya Pradesh · 4 Aug 2018, Shift 1Medium

Indirect cost is that cost incurred by the firm which ________.

  1. A.has already been incurred and cannot be avoided
  2. B.can be easily traceable to a product
  3. C.are common to several products
  4. D.are aggregate of variable cost
Show answer
Correct answer: C. are common to several products

Costs are classified as direct or indirect by traceability. A direct cost can be attributed wholly to one product, job or process, such as the raw material in a shirt or the wages of the worker who stitches it.

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