# Class 12 Economics Chapter 3 Production and Costs MCQ Questions with Answer

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## Class 12 Economics Chapter 3 MCQ Questions with Answer

Class 12 Economics MCQ with answers are given here for Chapter 3 Production and Costs. These MCQs are based on the latest CBSE board syllabus and relate to the latest Class 12 Economics syllabus. By Solving these Class 12 MCQs, you will be able to analyze all of the concepts quickly in the chapter and get ready for the Class 12 Annual exam.

Learn Class 12 Economics Chapter 3 MCQ with Answer according to the latest CBSE and NCERT syllabus. Students should prepare for the examination by solving CBSE MCQ on Production and Costs Class 12 PDF with answers given below.

Question 1. The inputs that a firm uses in the production process are called
(a) factors of production
(b) organs of production
(c) production inputs
(d) none of the above

A

Question 2. The relationship between the variable input and output, keeping all other inputs constant, is often referred to as ___ of the variable input.
(a) Total Product (TP)
(b) Average Product
(c) Marginal Product
(d) None of the above

A

Question 3. Which of the following is not an input?
(a) steel
(b) aluminium
(c) rubber
(d) car

D

Question 4. If a firm’s revenues just cover all its opportunity costs, then:
(a) normal profit is zero.
(b) economic profit is zero.
(c) total revenues equal its explicit costs.
(d) total revenues equal its implicit costs.

B

Question 5. Marginal Product
(a) Output / Input
(b) Input / Output
(c) Change in output / Change in input
(d) Change in input / Change in output

C

Question 6. An increase in the amount of one of the inputs keeping all other inputs constant results in
(a) decrease in output
(b) an increase in output
(c) consistency in output
(d) none of the above

B

Question 7. The reason the marginal cost curve eventually increases as output increases for the typical firm is because:
(a) of diseconomies of scale.
(b) of minimum efficient scale.
(c) of the law of diminishing returns.
(d) normal profit exceeds economic profit.

C

Question 8. The short run is a time period in which:
(a) all resources are fixed.
(b) the level of output is fixed.
(c) the size of the production plant is variable.
(d) some resources are fixed and others are variable.

D

Question 9. When the total product curve is falling, the:
(a) marginal product of labor is zero.
(b) marginal product of labor is negative.
(c) average product of labor is increasing.
(d) average product of labor must be negative.

B

Question 10. The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of:
(a) economies of scale.
(b) normative economies.
(c) diminishing marginal returns.
(d) an increasing marginal product of labor.

A

Question 11. The firm’s short-run marginal-cost curve is increasing when:
(a) marginal product is increasing.
(b) marginal product is decreasing.
(c) total fixed cost is increasing.
(d) average fixed cost is decreasing.

B

Question 12. If the marginal product of labour is below the average product of labour. It must be true that:
(a) Marginal product of labour is negative
(b) Marginal product of labour is zero
(c) Average product of labour is falling
(d) Average product of labour is negative

C

Question 13. If LAC curve falls as output expands, this is due to _____:
(a) Law of diminishing retains
(b) Economics of scale
(c) Law of variable proportion
(d) Diseconomics of scale

B

Question 14. In the graph above, minimum efficient scale occurs at:
(a) Q1.
(b) Q2.
(c) Q3.
(d) Q4.

B

Question 15. Increasing returns to scale can be explained in terms of:
(a) External and internal economies
(b) External and internal diseconomies
(c) External economics and internal diseconomies
(d) All of these

A

Question 16. As output increases:
(a) MC curve firstly falls then rises
(b) MC firstly rises then falls
(c) MC continuously rises
(d) None of these

A

Question 17. Which statement is true:
(a) ATC + AVC = AFC
(b) ATC + MC = AFC
(c) ATC + AFC = AVC
(d) AFC + AVC = ATC

D

Question 18. Excise tax is a part of:
(a) Fixed cost
(b) Variable cost
(c) Implicit cost
(d) Is not a part of cost

B

Question 19. The long run is a:
(a) Period of three years or longer
(b) Period long enough to allow firms to change plant size and capacity
(c) Period long enough to allow firm to make economic decisions
(d) A period which affects larger than smaller firms

B

Question 20. All the following are U-shaped Except:
(a) AVC
(b) AFC
(c) AC
(d) MC

B

Question 21. Short-run average variable cost is equal to
(a) total variable cost divided by output.
(b) average total cost minus average fixed cost.
(c) the cost per unit of the variable input divided by the average product of the variable input.
(d) all of the above.

D

Question 22. If the output levels at which short-run marginal and average cost curves reach a minimum are listed in order from smallest to greatest, then the order would be
(a) AVC, MC, ATC
(b) ATC, AVC, MC
(c) MC, AVC, ATC
(d) AVC, ATC, MC

B

Question 23. AC may continue to decline even when MC is rising. Why?
(a) MC < AC
(b) MC = AC
(c) AC < MC
(d) AC = TC

A

Question 24. Breakeven analysis identifies the
(a) profit-maximizing level of output.
(b) level of output where economic profit is equal to zero.
(c) level of output where marginal revenue is equal to marginal cost.
(d) All of the above are correct.

B

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Question 25. If a firm has a downward sloping long-run average cost curve, then
(a) it is experiencing decreasing returns to scale.
(b) it is experiencing decreasing returns.
(c) it is a natural monopoly.
(d) marginal cost is greater than average cost.

C

Question 26. The Japanese cost-management system involves
(a) designing a product and then determining the cost of producing it.
(b) a new system of accounting for capital depreciation.
(c) determining how much a product should cost and then determining how it should be produced.
(d) minimizing international transportation costs.

C

Question 27. A cost not relevant to deciding whether to purchase a new machine is:
(a) The cost of the new machine
(b) Lower maintenance costs for the new machine
(c) The cost of the old machine
(d) Additional training required for operating the new machine

C

Question 28. Which of the following values cannot be calculated at the firm’s breakeven level of output?
(a) operating leverage.
(b) contribution margin per unit.
(c) degree of operating leverage.
(d) profit.

C

Question 29. The process whereby firms reduce their production costs by taking advantage of international differences in the prices of inputs and international similarities in preferences is referred to as the
(a) strategic opportunity concept.
(b) new international economies of scale.
(c) global dictum.
(d) transnational cost theorem.

B

Question 30. Which one of the following statements is false?
(a) Marginal cost depends on the amount of labour hired.
(b) Average fixed cost plus average variable cost equals average total cost.
(c) Total cost equals total fixed cost plus total average cost.
(d) Marginal cost is the increase in total cost resulting from a unit increase in output.
(e) Average total cost is total cost per unit of output.

C

Question 31. The ‘law of diminishing marginal returns’ refers to the general tendency for ___to eventually diminish as more of the variable input is employed, given the quantity of fixed inputs.
(a) marginal cost
(b) average total cost
(c) average product
(d) marginal product
(d) capital

D

Question 32. The marginal cost (M(c) curve intersects the:
(a) ATC curve at its maximising point
(b) ATC and AVC curves at their minimum points
(c) ATC, AVC and AFC curves at their minimum points
(d) ATC and AFC curves at their minimum points.
(e) AVC and AFC curves at their minimum points

B

Question 33. Economies of scale exist when:
(a) the firm is too large and too diversified
(b) the firm is too small and too specialised
(c) the long-run cost of producing a unit of output falls as the output increases
(d) a firm’s decision to hire additional inputs does not result in an increase in the price of inputs
(e) the cost of finding a trading partner is low.

C

Question 34. The opportunity cost of using an asset is zero if
(b) no money was spent to acquire the asset.
(c) the asset is already owned by the firm.
(d) the asset has zero sunk costs associated with it.
(e) the asset has no alternative uses.

E

Question 35. An example of inputs to production termed intermediate products is
(a) an input that is an output of another firm.
(b) capital.
(c) money.
(d) labour.
(e) land.

C

Question 36. Real capital includes
(a) a firm’s bank account deposits.
(b) a firm’s physical assets.
(c) corporate bonds.
(d) corporate stock.
(e) owner’s equity.

B

Question 37. A limited partnership differs from an ordinary partnership by
(a) including at least one partner whose liability is restricted to the amount that he or she invested in the firm.
(b) having unlimited liability for all partners.
(c) having limited liability of all partners.
(d) having a limited number of partners, each with limited liability.
(e) having a limited number of partners.

A

Question 38. In the short run, when capital is a fixed factor, a rise in the cost of labour
(a) shifts the AVC curve down.
(b) leaves the MC curve unchanged.
(c) shifts the total product curve downwards.
(d) shifts the marginal cost curve upwards.
(e) leaves the ATC curve unchanged.

D

Question 39. TC = TFC +
(a) TMC
(b) AVC
(c) TAC
(d) TVC

D

Question 40. The non-maximizing models of firm behaviour suggest
(a) that firms are not profit-oriented.
(b) that firms will make radical changes in their behaviour in response to any profit incentive.
(c) it is unlikely that profit-maximizing theory captures all aspects of corporate behaviour.
(d) that the search for profits and avoidance of losses embodied in profit-maximization theory is incorrect.
(e) sensitivity to small but not large changes in market signals.

C

Question 41. A firm’s decision about whether to shut down or continue production would not include in its consideration
(a) accounting costs.
(b) economic costs.
(c) direct production costs.
(d) fixed costs.
(e) implicit costs.

D

Question 42. We can predict that resources will move into an industry whenever
(a) accounting profits for firms in that industry are zero.
(b) that industry becomes fashionable.
(c) economic profits for firms in that industry are greater than zero.
(d) accounting profits for firms in that industry are greater than zero.
(e) economic profits for firms in that industry are zero.

C

Question 43. Average, marginal, and total product curves
(a) express relationships between physical inputs and physical outputs.
(b) demonstrate that in the short run, all inputs are variable.
(c) demonstrate that each of these measures of output increase as more inputs are applied.
(d) relate the prices of inputs (factors of production) to the prices of products.
(e) relate the price of output to the quantity supplied.

A

Question 44. What is AFC * Q?
(a) TFC
(b) TVC
(c) AVC
(d) ATC

A

Question 45. If total product is at a maximum, then
(a) marginal product must be greater than zero and must be falling.
(b) marginal product must be falling and be equal to zero.
(c) average product must be rising and must lie above marginal product.
(d) average product must be falling and be equal to zero.
(e) average product must equal marginal product.

B

Question 46 . Which of the following product does not have an inverse U -shaped curve?
(a) Total product
(b) Average product
(c) Marginal product
(d) All of the above

A

Question 47. Which of the following is the sum total of output of each unit of the variable factor used in the production process?
(a) Marginal product
(b) Total product
(c) Average product
(d) Factor product

B

Question 48. Which of the following is not an important component of fixed costs?
(a) Wages of casual labour
(b) Expenditure on machine and plant
(c) Expenditure on land and building
(d) Wages of permanent employee

A

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