MULTIPLE CHOICE QUESTIONS
1. Which of the following is considered production in Economics?
(a) Tilling of soil.
(b) Singing a song before friends.
(c) Preventing a child from falling into a manhole on the road.
(d) Painting a picture for pleasure.
2. Identify the correct statement:
(a) The average product is at its maximum when marginal product is equal to average product.
(b) The law of increasing returns to scale relates to the e ect of changes in factor proportions.
(c) Economies of scale arise only because of indivisibilities of factor proportions.
(d) Internal economies of scale can accrue when industry expands beyond optimum.
3. Which of the following is not a characteristic of land?
(a) Its supply for the economy is limited.
(b) It is immobile.
(c) Its usefulness depends on human e orts.
(d) It is produced by our forefathers.
4. Which of the following statements is true?
(a) Accumulation of capital depends solely on income of individuals.
(b) Savings can be in uenced by government policies.
(c) External economies go with size and internal economies with location.
(d) The supply curve of labour is an upward slopping curve.
5. In the production of wheat, all of the following are variable factors that are used by the farmer
except:
(a) the seed and fertilizer used when the crop is planted.
(b) the field that has been cleared of trees and in which the crop is planted.
(c) the tractor used by the farmer in planting and cultivating not only wheat but also corn and barley.
(d) the number of hours that the farmer spends in cultivating the wheat fields.
6. The marginal product of a variable input is best described as:
(a) total product divided by the number of units of variable input.
(b) the additional output resulting from a one unit increase in the variable input.
(c) the additional output resulting from a one unit increase in both the variable and fixed inputs.
(d) the ratio of the amount of the variable input that is being used to the amount of the fixed input that
is being used.
7. Diminishing marginal returns implies:
(a) decreasing average variable costs.
(b) decreasing marginal costs.
(c) increasing marginal costs.
(d) decreasing average fixed costs.
8. The short run, as economists use the phrase, is characterized by:
(a) at least one fixed factor of production and firms neither leaving nor entering the industry.
(b) generally a period which is shorter than one year.
(c) all factors of production are fixed and no variable inputs.
(d) all inputs are variable and production is done in less than one year.
9. The marginal, average, and total product curves encountered by the firm producing in the short run
exhibit all of the following relationships except:
(a) when total product is rising, average and marginal product may be either rising or falling.
(b) when marginal product is negative, total product and average product are falling.
(c) when average product is at a maximum, marginal product equals average product, and total
product is rising.
(d) when marginal product is at a maximum, average product equals marginal product, and total
product is rising.
10. To economists, the main di erence between the short run and the long run is that:
(a) In the short run all inputs are fixed, while in the long run all inputs are variable.
(b) In the short run the firm varies all of its inputs to find the least-cost combination of inputs.
(c) In the short run, at least one of the firm’s input levels is fixed.
(d) In the long run, the firm is making a constrained decision about how to use existing plant and
equipment eficiently.
11. Which of the following is the best definition of “production function”?
(a) The relationship between market price and quantity supplied.
(b) The relationship between the firm’s total revenue and the cost of production.
(c) The relationship between the quantities of inputs needed to produce a given level of output.
(d) The relationship between the quantity of inputs and the firm’s marginal cost of production.
12. The “law of diminishing returns” applies to:
(a) the short run, but not the long run.
(b) the long run, but not the short run.
(c) both the short run and the long run.
(d) neither the short run nor the long run.
13. Diminishing returns occur:
(a) when units of a variable input are added to a fixed input and total product falls.
(b) when units of a variable input are added to a fixed input and marginal product falls.
(c) when the size of the plant is increased in the long run.
(d) when the quantity of the fixed input is increased and returns to the variable input falls.
14. What is the total output when 2 hours of labour are employed?
(a) 80 (b) 100
(c) 180 (d) 200
15. What is the marginal product of the third hour of labour?
(a) 60 (b) 80
(c) 100 (d) 240
16. What is the average product of the first three hours of labour?
(a) 60 (b) 80
(c) 100 (d) 240
17. Which cost increases continuously with the increase in production?
(a) Average cost. (b) Marginal cost.
(c) Fixed cost. (d) Variable cost.
18. Which of the following cost curves is never ‘U’ shaped?
(a) Average cost curve. (b) Marginal cost curve.
(c) Average variable cost curve. (d) Average fixed cost curve.
19. Total cost in the short run is classified into fixed costs and variable costs. Which one of the following is a
variable cost?
(a) Cost of raw materials. (b) Cost of equipment.
(c) Interest payment on past borrowings. (d) Payment of rent on building.
20. In the short run, when the output of a firm increases, its average fixed cost:
(a) increases. (b) decreases.
(c) remains constant. (d) first declines and then rises.
21. Which one of the following is also known as planning curve?
(a) Long run average cost curve. (b) Short run average cost curve.
(c) Average variable cost curve. (d) Average total cost curve.