1. The cost incurred on variable factors of production is called:
A) Fixed Cost
B) Variable Cost
C) Total Cost
D) Marginal Cost
Answer: B
Explanation: Variable cost changes with output (e.g., wages, raw materials).
2. Which of the following is a fixed cost?
A) Rent of building
B) Wages of laborers
C) Raw materials
D) Power charges
Answer: A
Explanation: Rent does not vary with output → fixed cost.
3. The sum of fixed and variable costs is called:
A) Marginal Cost
B) Opportunity Cost
C) Total Cost
D) Average Cost
Answer: C
Explanation: Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC).
4. Marginal cost is defined as:
A) Cost per unit
B) Additional cost of producing one more unit
C) Difference between fixed and variable cost
D) Total cost divided by output
Answer: B
Explanation: MC = ΔTC ÷ ΔQ.
5. Average cost is calculated as:
A) TC ÷ Q
B) VC ÷ Q
C) FC ÷ Q
D) MC ÷ Q
Answer: A
Explanation: AC = Total Cost / Quantity produced.
6. Which cost curve is U-shaped due to law of variable proportions?
A) Average Cost curve
B) Total Cost curve
C) Fixed Cost curve
D) None
Answer: A
Explanation: AC curve first falls, then rises due to increasing & diminishing returns.
7. In the long run, all costs are:
A) Fixed
B) Variable
C) Sunk
D) Marginal
Answer: B
Explanation: In long run, firms can vary all inputs, so all costs are variable.
8. Sunk cost refers to:
A) Future cost
B) Opportunity cost
C) Past expenditure not recoverable
D) Marginal cost
Answer: C
Explanation: Sunk costs cannot be recovered once spent.
9. Opportunity cost means:
A) Actual money spent
B) Cost of next best alternative forgone
C) Fixed cost
D) Variable cost
Answer: B
Explanation: It represents forgone alternatives when resources are used in one way.
10. Which of the following is a short-run concept?
A) Economies of scale
B) Law of variable proportion
C) Returns to scale
D) Long-run cost
Answer: B
Explanation: Variable proportion applies when some factors are fixed (short run).
11. The vertical distance between total cost and total variable cost curve is:
A) Marginal cost
B) Total fixed cost
C) Average variable cost
D) Average fixed cost
Answer: B
Explanation: TC = TFC + TVC → gap = fixed cost.
12. Which cost falls continuously as output rises?
A) Average Fixed Cost
B) Average Variable Cost
C) Average Cost
D) Marginal Cost
Answer: A
Explanation: Fixed cost spread over more units, so AFC falls with output.
13. When marginal cost is less than average cost, average cost will:
A) Rise
B) Fall
C) Remain constant
D) None
Answer: B
Explanation: MC < AC pulls AC down (like average-marginal relation).
14. When marginal cost equals average cost, average cost is:
A) Rising
B) Falling
C) Constant (minimum point)
D) Zero
Answer: C
Explanation: AC is minimum when MC = AC.
15. Explicit costs are:
A) Imputed costs
B) Costs paid in money terms
C) Opportunity costs
D) Sunk costs
Answer: B
Explanation: Explicit = actual expenditure (wages, rent, materials).
16. Implicit costs are:
A) Money payments
B) Imputed value of self-owned resources
C) Total cost
D) Fixed cost
Answer: B
Explanation: Implicit = cost of self-owned resources (e.g., owner’s capital).
17. Normal profit is a part of:
A) Cost of production
B) Supernormal profit
C) Revenue
D) Marginal cost
Answer: A
Explanation: Normal profit = minimum return → treated as implicit cost.
18. Which cost is considered for decision making?
A) Historical cost
B) Sunk cost
C) Marginal cost
D) Total cost
Answer: C
Explanation: Marginal cost is relevant for production decisions.
19. Which cost curve never touches X-axis?
A) Average Fixed Cost
B) Average Variable Cost
C) Average Cost
D) Total Cost
Answer: A
Explanation: AFC decreases but never becomes zero.
20. The short-run supply curve of a firm is:
A) Average cost curve above AVC
B) Marginal cost curve above AVC
C) Average variable cost curve above AC
D) None
Answer: B
Explanation: Firm supplies in short run as long as P ≥ AVC → MC above AVC is supply curve.
21. Shut down point of a firm occurs when:
A) Price = MC
B) Price = AC
C) Price = AVC
D) Price = TC
Answer: C
Explanation: Firm continues as long as it covers variable cost.
22. Break-even point is when:
A) TR = TC
B) TR > TC
C) TR < TC
D) TR = 0
Answer: A
Explanation: At break-even, firm makes no profit, no loss.
23. If a firm is covering variable cost but not fixed cost, it should:
A) Shut down immediately
B) Continue in short run
C) Exit market in short run
D) Increase fixed cost
Answer: B
Explanation: If P ≥ AVC, it can continue temporarily.
24. Learning curve in economics refers to:
A) Cost rises with output
B) Cost falls as workers gain experience
C) Marginal cost equals average cost
D) Fixed cost increases with time
Answer: B
Explanation: Efficiency from learning → reduces cost per unit.
25. Economies of scale refer to:
A) Rising AC in long run
B) Falling AC in long run
C) Constant AC in short run
D) Marginal cost > average cost
Answer: B
Explanation: Economies of scale → lower average costs as output expands.
26. The functional relationship between inputs and output is called:
A) Demand function
B) Production function
C) Cost function
D) Utility function
Answer: B
Explanation: A production function shows maximum output from given inputs with existing technology.
27. In the short run, some factors are:
A) Fixed and some variable
B) All variable
C) All fixed
D) Neither fixed nor variable
Answer: A
Explanation: Short run = at least one input is fixed (e.g., capital).
28. In the long run, factors of production are:
A) All fixed
B) All variable
C) Only labor is variable
D) Only capital is variable
Answer: B
Explanation: In the long run, all inputs can be changed.
29. Which law explains the behavior of output when only one input varies, others fixed?
A) Law of Returns to Scale
B) Law of Variable Proportions
C) Law of Diminishing Returns
D) Law of Supply
Answer: B
Explanation: Law of Variable Proportions applies in the short run.
30. The Law of Diminishing Marginal Returns states that:
A) Each additional unit of input produces more output
B) Each additional unit of input eventually produces less additional output
C) Output decreases with every input
D) Marginal returns always rise
Answer: B
Explanation: After a certain point, extra input yields less additional output.
31. Returns to Scale refers to:
A) Change in output when all inputs are changed proportionately
B) Change in output when one input varies
C) Change in cost with output
D) None
Answer: A
Explanation: Long run concept → all inputs vary in same proportion.
32. Increasing returns to scale means:
A) Output increases more than inputs
B) Output increases less than inputs
C) Output increases proportionately
D) Output falls with inputs
Answer: A
Explanation: If inputs ↑ 10%, output ↑ > 10% → increasing returns.
33. Constant returns to scale means:
A) Inputs ↑, output ↑ proportionately
B) Inputs ↑, output ↑ more
C) Inputs ↑, output ↑ less
D) No change in output
Answer: A
Explanation: Inputs and outputs grow at same rate.
34. Decreasing returns to scale means:
A) Inputs ↑, output ↑ more
B) Inputs ↑, output ↑ less
C) Inputs ↑, output ↑ equally
D) Inputs ↓, output ↑
Answer: B
Explanation: Inputs ↑ 10%, output ↑ < 10%.
35. Isoquants are similar to:
A) Demand curves
B) Indifference curves
C) Cost curves
D) Supply curves
Answer: B
Explanation: Isoquant shows different input combinations yielding same output, like indifference curves for utility.
36. A higher isoquant represents:
A) Less output
B) Same output
C) More output
D) Constant output
Answer: C
Explanation: Higher isoquants indicate greater output levels.
37. The slope of isoquant is called:
A) Marginal Rate of Substitution
B) Marginal Rate of Technical Substitution (MRTS)
C) Elasticity of Demand
D) Marginal Productivity
Answer: B
Explanation: MRTS = rate at which one input substitutes another keeping output constant.
38. Law of Returns to Scale is a:
A) Short run law
B) Long run law
C) Both short and long run
D) Not related to production
Answer: B
Explanation: Returns to Scale apply when all factors are variable (long run).
39. Total Product (TP) refers to:
A) Additional output
B) Total output produced
C) Average of inputs
D) Marginal productivity
Answer: B
Explanation: TP = sum of total output produced by all units of input.
40. Average Product (AP) is calculated as:
A) TP ÷ Units of input
B) ΔTP ÷ ΔInput
C) TC ÷ Q
D) MC ÷ Q
Answer: A
Explanation: AP = Total Product / Number of inputs.
41. Marginal Product (MP) is:
A) TP ÷ Inputs
B) Additional output from one more unit of input
C) TC ÷ Q
D) AVC ÷ Q
Answer: B
Explanation: MP = ΔTP ÷ ΔInput.
42. When MP is greater than AP, AP is:
A) Rising
B) Falling
C) Constant
D) Zero
Answer: A
Explanation: Like averages → when marginal > average, average rises.
43. When MP = 0, TP is:
A) Rising
B) Falling
C) Maximum
D) Minimum
Answer: C
Explanation: At maximum TP, MP becomes zero.
44. Stage of diminishing returns in production begins when:
A) TP rises at increasing rate
B) TP rises at decreasing rate
C) TP starts declining
D) AP = MP
Answer: B
Explanation: Diminishing returns occur when TP still rises but at decreasing rate.
45. Negative returns occur when:
A) TP rises at decreasing rate
B) TP is constant
C) TP starts falling
D) MP is rising
Answer: C
Explanation: TP falls → MP becomes negative.
46. Law of Variable Proportions has how many stages?
A) 1
B) 2
C) 3
D) 4
Answer: C
Explanation: Three stages: increasing, diminishing, negative returns.
47. In production, the optimum stage is when:
A) AP is rising
B) MP is negative
C) MP is positive but falling
D) TP is maximum
Answer: C
Explanation: Rational producer works in stage of diminishing returns (MP > 0, declining).
48. Isoquant is convex to origin because of:
A) Increasing MRTS
B) Constant MRTS
C) Diminishing MRTS
D) Zero MRTS
Answer: C
Explanation: As one input substitutes another, MRTS diminishes.
49. Ridge lines in production represent:
A) Area of irrational production
B) Area of rational production
C) Points of maximum profit
D) None
Answer: B
Explanation: Ridge lines mark boundaries of rational production zone.
50. Cobb-Douglas production function shows:
A) Relationship between cost and output
B) Relationship between two inputs and output
C) Relationship between demand and supply
D) Relationship between price and quantity
Answer: B
Explanation: Cobb-Douglas function is widely used to study input-output relation (e.g., Q = A L^α K^β).
51. The concept of utility in economics refers to:
A) Usefulness of a commodity
B) Power of a commodity to satisfy wants
C) Price of a commodity
D) Demand of a commodity
Answer: B
Explanation: Utility means the satisfaction derived from consumption.
52. Law of Diminishing Marginal Utility states that:
A) Utility increases as more units are consumed
B) Utility decreases as income falls
C) Additional satisfaction decreases with each additional unit consumed
D) Total utility always decreases
Answer: C
Explanation: Each extra unit consumed gives less additional satisfaction.
53. Marginal Utility is:
A) Total satisfaction from all units consumed
B) Additional satisfaction from consuming one more unit
C) Average satisfaction
D) Satisfaction from the first unit only
Answer: B
Explanation: MU = ΔTU ÷ ΔQ.
54. Total Utility is maximum when:
A) MU = 0
B) MU > 0
C) MU < 0
D) MU = Constant
Answer: A
Explanation: TU is maximum when marginal utility becomes zero.
55. Consumer equilibrium is achieved when:
A) MU > Price
B) MU = Price
C) MU < Price
D) TU is maximum
Answer: B
Explanation: Consumer is in equilibrium when MU of last unit = Price (for one good).
56. In case of two goods, consumer equilibrium occurs when:
A) MUx = Px and MUy = Py
B) MUx/Px = MUy/Py
C) MUx × MUy = Px × Py
D) MUx + MUy = Px + Py
Answer: B
Explanation: Consumer equilibrium condition: MUx/Px = MUy/Py.
57. Indifference curve represents:
A) Demand schedule
B) Different prices of a good
C) Combinations of goods giving equal satisfaction
D) Supply schedule
Answer: C
Explanation: All points on an indifference curve give equal utility.
58. Indifference curve is convex to origin because of:
A) Increasing marginal utility
B) Constant MRTS
C) Diminishing marginal rate of substitution
D) Law of supply
Answer: C
Explanation: Consumers give up less and less of one good to get additional units of another.
59. Higher indifference curve shows:
A) Lower satisfaction
B) Equal satisfaction
C) Greater satisfaction
D) Negative satisfaction
Answer: C
Explanation: Higher curve = higher utility level.
60. Budget line shows:
A) Consumer tastes
B) Combinations of goods affordable with given income
C) Prices of goods only
D) Equilibrium condition
Answer: B
Explanation: Budget line = income ÷ prices → affordable bundles.
61. Consumer reaches equilibrium at the point where:
A) Budget line is above indifference curve
B) Indifference curve touches budget line
C) Budget line is parallel to X-axis
D) Indifference curve is vertical
Answer: B
Explanation: Equilibrium = tangency point between indifference curve & budget line.
62. Engel’s curve shows the relation between:
A) Price and quantity demanded
B) Income and quantity demanded
C) Supply and demand
D) Utility and consumption
Answer: B
Explanation: Engel’s curve = income vs demand.
63. Gossen’s First Law refers to:
A) Law of Demand
B) Law of Diminishing Marginal Utility
C) Law of Equi-Marginal Utility
D) Law of Supply
Answer: B
Explanation: Gossen’s First Law = diminishing marginal utility.
64. Gossen’s Second Law is also known as:
A) Law of Demand
B) Law of Equi-Marginal Utility
C) Law of Supply
D) Law of Returns
Answer: B
Explanation: Gossen’s Second Law → allocate resources such that MU per rupee is equalized across goods.
65. Law of Equi-Marginal Utility is also called:
A) Law of Substitution
B) Law of Diminishing Returns
C) Law of Proportionality
D) Both A and C
Answer: D
Explanation: It is also called Law of Substitution or Proportionality.
66. Consumer’s surplus is:
A) Excess of total utility over actual expenditure
B) Excess of price paid over utility
C) Equal to total utility
D) Difference between AC and MC
Answer: A
Explanation: Consumer surplus = TU – Expenditure.
67. The concept of consumer surplus was introduced by:
A) Adam Smith
B) Alfred Marshall
C) Ricardo
D) Keynes
Answer: B
Explanation: Marshall introduced consumer surplus.
68. If MU of money rises, the consumer will:
A) Spend more on goods
B) Spend less on goods
C) Remain indifferent
D) Demand more luxury goods
Answer: B
Explanation: Higher MU of money → consumer values money more → reduces spending.
69. When indifference curves are parallel straight lines, it means:
A) Perfect complements
B) Perfect substitutes
C) Normal goods
D) Inferior goods
Answer: B
Explanation: Perfect substitutes → straight-line indifference curves.
70. Rightward shift of budget line occurs due to:
A) Fall in income
B) Rise in income
C) Rise in prices
D) Both A and C
Answer: B
Explanation: Higher income → budget line shifts outward (right).
71. Leftward shift of budget line occurs due to:
A) Fall in income
B) Fall in prices
C) Rise in income
D) Both A and B
Answer: A
Explanation: Lower income reduces affordability → shifts inward.
72. Kinked indifference curve represents:
A) Perfect substitutes
B) Perfect complements
C) Inferior goods
D) Giffen goods
Answer: B
Explanation: Perfect complements → right-angled indifference curves.
73. The slope of budget line is determined by:
A) Income only
B) Price ratio of two goods
C) Utility of goods
D) Marginal rate of substitution
Answer: B
Explanation: Budget line slope = Px/Py.
74. If income doubles but prices remain same, budget line:
A) Rotates
B) Shifts outward parallelly
C) Shifts inward
D) Remains unchanged
Answer: B
Explanation: Parallel shift outward → more purchasing power.
75. If price of one good falls, budget line:
A) Shifts inward
B) Rotates outward on that axis
C) Remains same
D) Rotates inward
Answer: B
Explanation: Fall in price → budget line rotates outward, allowing more consumption of that good.
76. A market structure where there are many buyers and sellers, homogeneous product, and free entry is called:
A) Monopoly
B) Perfect Competition
C) Oligopoly
D) Monopolistic Competition
Answer: B
Explanation: Perfect competition has large number of firms, identical product, free entry/exit.
77. Under perfect competition, the demand curve for an individual firm is:
A) Downward sloping
B) Upward sloping
C) Horizontal (perfectly elastic)
D) Vertical (perfectly inelastic)
Answer: C
Explanation: A single firm is a price taker → perfectly elastic demand.
78. In monopoly, the demand curve of the firm is:
A) Horizontal
B) Downward sloping
C) Vertical
D) U-shaped
Answer: B
Explanation: Monopoly firm faces the market demand curve, which slopes downward.
79. Price discrimination is possible under:
A) Perfect competition
B) Monopoly
C) Monopolistic competition
D) Oligopoly
Answer: B
Explanation: A monopolist can charge different prices to different consumers.
80. In the long run, firms in perfect competition earn:
A) Supernormal profits
B) Losses
C) Normal profits
D) Monopoly profits
Answer: C
Explanation: Free entry/exit ensures firms make only normal profits.
81. A monopolist maximizes profit at the level of output where:
A) MR = AR
B) MR = MC
C) AR = AC
D) AC = MC
Answer: B
Explanation: Profit is maximized when marginal revenue = marginal cost.
82. Kinked demand curve is associated with:
A) Monopoly
B) Monopolistic competition
C) Oligopoly
D) Perfect competition
Answer: C
Explanation: Oligopoly firms face kinked demand curve due to price rigidity.
83. Collusive agreement among firms is most common in:
A) Monopoly
B) Oligopoly
C) Monopolistic competition
D) Perfect competition
Answer: B
Explanation: Few firms in oligopoly may collude to fix price/output.
84. Product differentiation is a feature of:
A) Monopoly
B) Perfect competition
C) Monopolistic competition
D) Duopoly
Answer: C
Explanation: Firms differentiate products (e.g., branding) under monopolistic competition.
85. In perfect competition, AR and MR curves are:
A) Coinciding horizontal lines
B) Downward sloping
C) Upward sloping
D) Coinciding vertical lines
Answer: A
Explanation: AR = MR = Price (constant under perfect competition).
86. Price leadership is a form of:
A) Monopoly
B) Oligopoly
C) Monopolistic competition
D) Perfect competition
Answer: B
Explanation: In oligopoly, a dominant firm sets price → others follow.
87. Which of the following is not a feature of monopoly?
A) Single seller
B) Unique product
C) Free entry and exit
D) Price maker
Answer: C
Explanation: In monopoly, entry is restricted/barriers exist.
88. Cartels are common in:
A) Perfect competition
B) Monopoly
C) Oligopoly
D) Monopolistic competition
Answer: C
Explanation: Oligopolists form cartels to control price/output.
89. Selling costs are important under:
A) Perfect competition
B) Monopoly
C) Monopolistic competition
D) Duopoly
Answer: C
Explanation: Firms spend on advertising/branding under monopolistic competition.
90. Duopoly is a market with:
A) One seller
B) Two sellers
C) Many sellers
D) Many buyers and sellers
Answer: B
Explanation: Duopoly = two firms dominate market.
91. The curve showing possible combinations of two goods a consumer can purchase is:
A) Demand curve
B) Supply curve
C) Budget line
D) Indifference curve
Answer: C
Explanation: Budget line = combinations affordable given income & prices.
92. Which of the following is true under monopolistic competition in long run?
A) Firms earn abnormal profit
B) Firms earn only normal profit
C) Firms make losses
D) Firms close down
Answer: B
Explanation: Entry of new firms erodes profit → only normal profit.
93. Which one of the following is a real-world example of oligopoly?
A) Agriculture
B) Mobile telecom industry
C) Wheat market
D) Street food stalls
Answer: B
Explanation: Telecom/airlines/steel are classic oligopoly markets.
94. A firm in perfect competition can influence price by:
A) Advertising
B) Increasing output
C) Decreasing output
D) None
Answer: D
Explanation: Firm is a price taker, cannot influence market price.
95. Under monopoly, AR curve is:
A) Coinciding with MR curve
B) Above MR curve
C) Below MR curve
D) Equal to MC
Answer: B
Explanation: MR lies below AR for downward sloping demand.
96. Which condition is true for equilibrium of a perfectly competitive firm?
A) P = MC
B) MR = MC
C) AR = MR = MC
D) All of the above
Answer: D
Explanation: In equilibrium, Price = AR = MR = MC in perfect competition.
97. Discriminating monopoly means:
A) Charging same price in all markets
B) Charging different prices for same product in different markets
C) Charging cost price
D) Charging price lower than cost
Answer: B
Explanation: Price discrimination = different prices for same product.
98. Price rigidity is characteristic of:
A) Monopoly
B) Oligopoly
C) Monopolistic competition
D) Perfect competition
Answer: B
Explanation: Due to fear of retaliation, oligopolists keep prices stable.
99. In monopolistic competition, demand curve of firm is:
A) Perfectly elastic
B) Perfectly inelastic
C) Downward sloping and highly elastic
D) Vertical
Answer: C
Explanation: Differentiated products face elastic but downward sloping demand.
100. Under perfect competition, long-run supply curve of industry is usually:
A) Upward sloping
B) Downward sloping
C) Horizontal
D) Vertical
Answer: A
Explanation: In the long run, industry supply curve generally slopes upward due to rising costs.