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InterviewSolution
This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 51. |
Define the term Fixed cost and variable cost. |
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Answer» Fixed cost refers to the expenditure incurred on the fixed factors of production like plant and machinery. Variable cost refers to the expenditure incurred on the variable factors of production like casual workers. |
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| 52. |
Define the term Money cost and real cost. |
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Answer» Money cost refers to the sum of monetary expenses incurred by the producer for producing a commodity. Real cost refers to the pains, the discomfort and disutility involved in supplying the factors of production by their owners. |
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| 53. |
Defend or refute the statement. Write ‘yes’ or ‘no’ with reason:Fixed cost must be greater than variable cost when output is zero. |
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Answer» Yes. Because fixed costs are incurred even when output is zero, while variable costs are incurred only after output actually starts (so that variable costs are zero when output is zero). |
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| 54. |
Defend or refute the statement. Write ‘yes’ or ‘no’ with reason:Variable cost is incurred before production is started. |
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Answer» No. Variable costs are the expenditure incurred by the producer on the use of variable factors of production. These are incurred only after output actually starts. |
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| 55. |
What is the relation between Average Variable Cost and Average Total Cost, If Total Fixed Cost is zero ? |
| Answer» Average Variable Cost is equal to Average Total Cost. | |
| 56. |
The difference between average total cost and average variable cost is average fixed cost, which never becomes zero as total cost decreases with decrease with decrease in the level of output. |
| Answer» False. The difference between average total cost (ATC) and average variable cost (AVC) is average fixed cost (AFC) , which rises with decrease in output level . AFC=TFC/output. So Average fixed cost decreases as output increases and increases with decrease in output. | |
| 57. |
Output increases from 3 units to 4 units. As a result, TC rises from `₹ 19.60` to `₹ 24.50`. Find out MC. |
| Answer» Correct Answer - MC: `₹ 4.90` | |
| 58. |
TC rises from `₹ 30` to `₹ 55` when the output increases from `5` units to `6` units. Find out the MC of `6^(th)` unit. |
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Answer» `MC_(n) = TC_(n) - TC_(n-1)` `MC_(6) = TC_(6) - TC_(5)` `MC_(6) = ₹ 55 - ₹ 30 = ₹ 25` Ans. `MC` of `6^(th) unit = ₹ 25` |
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| 59. |
Complete the following sentence:Average and marginal cost tend to fall as output rises, because ______ |
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Answer» Average and marginal cost tend to fall as output rises, because of increasing returns to a factor. |
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| 60. |
Find AVC and MC at each given level of output. |
| Answer» Correct Answer - AVC: -, 40, 35, 30; MC : -, 40, 30, 20 | |
| 61. |
Explain the relation between MC and AVC. |
| Answer» Both MC and AVC curves are U-shaped. As long as MC is less than AVC, AVC decreases. When MC is more than the AVC, AVC increases. MC curve cuts the AVC curve at its minimum. | |
| 62. |
What is the relationship between marginal cost and average variable cost? |
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Answer» (i) Both AVC and MC curves are U-shaped. (ii) As long as MC is less than AVC, AVC decreases. (iii) When MC becomes greater than AVC, AVC rises. (iv) MC curve cuts the AVC at its minimum. |
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| 63. |
What is the relation between Average Variable Cost and Average Total Cost, if Total Fixed cost and Average Total cost. If Total Fixed Cost is zero? |
| Answer» If total fixed cost is zero, AVC and ATC coincides. | |
| 64. |
Define marginal cost. |
| Answer» Marginal cost is the additional cost incurred on account of producing one more unit of output. | |
| 65. |
Distinguish between fixed cost and variable costs. Give two examples of each. |
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Answer» Fixed costs are costs which remain fixed at all levels of output. On the other hand, variable costs are the costs which vary will the level of output. Examples of fixed costs - salary of permanent staff, rent. Examples of variable costs - wages, costs of purchasing of raw material. |
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| 66. |
Which of the following is not economics cost:A. Payment of factory rentB. Purchase of machineC. Normal profitD. Payment of interest |
| Answer» Correct Answer - C | |
| 67. |
What is the relation between marginal cost and average variable cost when marginal cost is rising and average varibale cost is falling? |
| Answer» Marginal cost is below the average variable cost. | |
| 68. |
Why does average fixed cost fall as output rises? |
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Answer» AFC = TFC/Q. TFC remains same at all levels of output whereas the output or Q increases when more of output is produced. Hence, AFC decreases with the increase in output. |
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| 69. |
Why does the difference between average total cost and average variable cost decrease with increase in the level of output? Explain. |
| Answer» The difference between ATC and AVC decreases because the AFC decreases with the increase in output and the difference between AVC and ATC is nothing else but AFC. | |
| 70. |
AVC of one unit of output is rs 10 while that of 2 units is rs 9. MC of one unit is:A. rs8B. rs9C. rs10D. rs19 |
| Answer» Correct Answer - C | |
| 71. |
An individual is both the owner and the manager of a shop taken on rent. Identify implicit cost and explicit cost from this information. |
| Answer» In the given case, rent paid for a shop is explicit cost because it is the expense incurred by the producer for purchasing the inputs from market. As a manager, the owner is rendering his own services. Managerial services are not hired from the market. So they are implicit cost as these costs are incurred on the use of self-owned inputs. | |
| 72. |
With increase the level of output. AFC goes on falling. True or false? Explain. |
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Answer» The given statement is true. AFC = TFC / Q. With the increase in output only the denominator of the fraction increases as TFC is fixed or constant at all output levels. Hence, the fraction or AFC decreases with the increase in output. |
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| 73. |
A producer borrows money and opens a shop. The shop premises is owned by him. Identify the implicit and explicit costs from this information . Explain. |
| Answer» In the given example, the producer borrows money and starts his business, therefore the expenses incurred (interest) on money borrowed is explicit cost. The producer looks after the business himself, therefore, the imputed cost of the efforts of the businessman is implicit cost. Managerial services are not hired from the market. | |
| 74. |
At why point does the SMC curve cut the SAC curve ? Give reason in support of your answer. |
| Answer» SMC curve cuts the SAC curve at its minimum point. It happens because when SAC falls, SMC is less than SAC. When SAC starts rising, SMC is more than SAC. So, it is only when SAC is constant and at its minimum point, that SMC is euqal to SAC. | |
| 75. |
A producer spent a sum of `₹ 12, 000` towards the fixed inputs to produce 200 units of commodity X. What will be the total fixed if the producer wants to produe 300 units ? |
| Answer» The total fixed costs (TFC) will remain at `₹ 12,000` as TFC remains same at all level of output. | |
| 76. |
What is the behaviour of Total Variable Cost as output increases ? |
| Answer» Initially total variable cost increases at a decreasing rate and after a point, it increases at an increasing rate. | |
| 77. |
Calculate the weekly TC and AVC from the following particlars: |
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Answer» Correct Answer - `TC = ₹ 12,300; AVC = ₹ 119` `TC = TVC + TFC` `TVC =` Raw material used + Power (Number of workers `xx` Weekly wage ) `TVC = 1,600 + 300 + (50 xx 200) = ₹ 11,990` `FC = "Weekly rent of shed" = ₹ 400` `TC= 11,900 + 400 = ₹ 12,300` `AVC = TVC ÷ "Units produced" = 11,900 ÷ 100 = ₹ 119` Ans. `TC = ₹ 12,300, AVC = ₹ 119` |
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| 78. |
MC can be direct derived from :A. TFCB. TVCC. ACD. AFC |
| Answer» Correct Answer - B | |
| 79. |
Average fixed costs:A. Remain same at all levels of outputB. Increase as output increasesC. Decreases as output increasesD. Initially increases and then decreases |
| Answer» Correct Answer - C | |
| 80. |
Which cure is not affected by fixed cost ?A. MC CurveB. TC CurveC. AC CurveD. AFC Curve |
| Answer» Correct Answer - A | |
| 81. |
All the curves except`"______"` are U shaped curves :A. Average Fixed Cost CurveB. Average Variable Cost CurveC. Average Cost CurveD. Marginal Cost Curve |
| Answer» Correct Answer - A | |
| 82. |
The cost schedule of a firm is given as : In the given case, average variable cost at `3^(rd)` level of output will be :A. `70`B. `66`C. `65`D. `64` |
| Answer» Correct Answer - D | |
| 83. |
Cost schedule is given as : In the given case, marginal cost at 4th level of output will be :A. 10B. 5C. 45D. 20 |
| Answer» Correct Answer - A | |
| 84. |
Define variable coasts . OR What is the meaning of prime costs ? |
| Answer» Variable costs (or prime costs) refer to those which vary directly with the level of output. For example,wages of casual labour, payment of raw material. | |
| 85. |
Define fixed costs. OR What is meant by supplementary costs ? |
| Answer» Fixed costs (or supplementary costs) refer to those costs which do not vary directly with the level of output. For example, salary of permanent staff, payment of insurance premium. | |
| 86. |
What are the 2 broad divisions of short run costs ? |
| Answer» (i) Total Variable Cost (TVC), (ii) Total Fixed Cost (TFC). | |
| 87. |
What is the meaning of implicit cost ? |
| Answer» Implicit cost is the estimated value of the inputs supplied by the owners including normal profit. For example, interset on own capital, rent of own land. | |
| 88. |
The AC of 5 units is `₹ 6` and `AC` of producing 6 units is `₹ 5`. Calculate the MC of `6^(th)` unit. |
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Answer» Correct Answer - `MC` of `6^(th)` unit `= ₹ 0` `MC_(n) = TC_(n)-TC_(n-1)` `MC_(6) = TC_(6) - TC_(5)` `TC_(6) = AC_(6) xx "Units of output" = ₹ 5 xx 6 = ₹ 30` `TC_(5) = AC_(5) xx "Units of output" = ₹ 6 xx 5 = ₹ 30` `MC_(6) = 30 - 30 = ₹ 0` Ans. `MC` of `6^(th)` unit `= ₹ 0` |
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