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Economics Theory of Production MCQ
1. What is meant by Production in Economics:
(a) Creation / Addition of Utility
(b) Production of capital goods
(c) Creation of services
(d) Producing of goods
Production can be defined as creation or addition of utility for satisfaction of human wants. So, option (a) is correct.
2. Which of the following is considered production in Economics?
(a) Tilling of soil for agriculture
(b) Singing a song before friends
(c) Preventing a child from falling into a manhole on the road
(d) None of these.
Since tilling of soil for agriculture is an economic activity, it is considered as production in Economics. So, option (a) is correct.
3. Which of the following is a factor(s) of production?
(a) Labour
(b) Capital
(c) Entrepreneurship
(d) All of these.
Land, Labour, Capital and Entrepreneurship are Four basic factors of production. So, option (d) is correct.
4. Which of the followings are called factors of production
(a) Natural Resources
(b) Man Made Resources
(c) Both (a) and (b)
(d) None of these.
Factors of production include both natural resources (like Land) and man made resources like Labour, Capital etc. So, option (c) is correct.
5. If a Resource is being used for generating further revenue, it will constitute
(a) Wealth
(b) Capital
(c) Both (a) and (b)
(d) Savings.
A resource used for creating further revenue is called Capital. So, option (b) is correct.
6. If there is an increase in income levels, the propensity to save :
(a) Reduces
(b) Increases
(c) Remains static
(d) Becomes negative
If there is an increase in income levels, the propensity to save Increases. So, option (b) is correct.
7. Level of Savings depends upon :
(a) Ability to Save
(b) Willingness to Save
(c) Both (a) and (b)
(d) None of these.
Level of savings depends on both one’s ability as well as willingness to save. So, option (c) is correct.
8. ————– shows the overall output generated at a given level of input:
(a) Cost function
(b) Production function
(c) ISO cost
(d) Demand function
Production function analyses shows the relationship between physical inputs of factors of production and physical output of a firm. So, option (b) is correct.
9. Production function shows
(a) relationship between output and cost
(b) relationship between profits and output
(c) physical relationship between input and output
(d) None of these.
Production function refers to physical relationship between input and output. So, option (c) is correct.
10. In a Production Function, Output refers to
(a) Goods and Services produced
(b) Factors of Production used
(c) Both (a) and (b)
(d) Either (a) or (b).
In a Production Function, Output refers to Goods and Services produced. So, option (a) is correct.
11. For a Cobb Douglas production function, elasticity of substitution is-
(a) zero
(b) negative
(c) one
(d) all of these.
For a Cobb Douglas production function, elasticity of substitution is one. So, option (c) is correct.
12. Which of the following shows the overall output generated at a given level of input.
(a) Cost function
(b) Production function
(c) Demand function
(d) Iso cost.
Production function shows the overall output generated at a given level of input. On the other hand the relationship between the cost of a product and various cost determinants is termed as cost function.So, option (b) is correct.
13. Cost function has relationship with
(a) investment function
(b) demand function
(c) production function
(d) savings function.
Cost function is associated with production function. So, option (c) is correct.
14. Law of variable proportion is valid when:
(a) Only one input is constant and all other inputs are kept changeable
(b) All factors are kept fixed
(c) All inputs are varied in equal proportion
(d) Any of these
Law of variable proportion does not apply if all factors are kept constant or all inputs are varied in the same proportion. It applies when only one input is fixed and all other inputs are variable. So, option (a) is correct.
15. Diminishing marginal returns implies
(a) Falling average variable costs
(b) Falling marginal costs
(c) Rising marginal costs
(d) Reducing average fixed costs
After attaining equilibrium point, marginal return starts to diminish due to increasing marginal cost. So, option (c) is correct.
16. Increase in all input leading to less than proportional increase in output is called ———–:
(a) Rising returns to scale
(b) Decreasing returns to scale
(c) Constant returns to scale
(d) Both increasing and decreasing returns to scale
In spite of increase of all inputs, there is less than proportional increase in output is referred as decreasing returns to scale. So, option (b) is correct.
17. If as a result of 60% increases in all inputs, the output increases by 30 %, this is a case of :
(a) Increasing returns to scale
(b) Constant returns to scale
(c) Increasing returns to factor
(d) Decreasing returns to scale √
If output increase is less than increase in inputs, this is a case of decreasing returns to scale.So, option (d) is correct.
18. In which of the following cases does output double with the doubling of all inputs?
(a) Constant returns to scale
(b) Decreasing returns to scale
(c) Negative returns to scale
(d) Positive as well as decreasing returns.
In case of constant returns to scale, use of double input produces double output. So, option (a) is correct.
19. In a situation, with every increase of one unit of labour and two units of capital, output increase by one unit. It is a case of :
(a) Increasing returns to scale
(b) Diminishing returns to scale
(c) Constant returns to scale
(d) Increasing returns initially, following by decreasing returns to scale.
With every increase of one unit of labour and two units of capital, output constantly increase by one unit. So, is an instance of Constant Returns to scale. So, option (c) is correct.
20. During second stage of law of Diminishing returns:
(a) MP and TP is maximum
(b) MP and AP are declining
(c) AP is minimum
(d) TP is maximum
During second stage of law of diminishing returns, both marginal product and average product starts decreasing. So, option (b) is correct.
21. Average cost curve is U-shaped due to law of:
(a) Law of increasing returns
(b) Law of decreasing returns
(c) Law of constant returns to scale
(d) Law of variable proportions
Average cost curve is U-shaped due to law of variable proportions. So, option (d) is correct.
22. At equilibrium point, a specific Isoquant is ————-to an isocost line.
(a) Convex
(b) Perpendicular
(c) Downward sloping
(d) Tangent.
At equilibrium point a specific isoquant is tangent to an isocost line.So, option (d) is correct.
23. Usually isoquants are —————.
(a) Concave to the origin
(b) Convex to the origin
(c) Tangent to the origin
(d) Vertical to the origin.
Usually isoquants are convex to the origin. So, option (b) is correct.
24. An isoquant———-.
(a) Slopes downward to the right
(b) Slopes downward to the Y axis
(c) Slopes upward to the right
(d) Slopes horizontal to X axis.
An isoquant slopes downward to the right because a decrease in the quantity of one factor of production must be associated with an increase in the quantity of another factor of production so that the same level of production may be maintained. So, option (a) is correct.
25. Isoquant is also called :
(a) Production indifference curve
(b) Cost-indifference curve
(c) Production function curve
(d) Indifference curve.
Isoquant is also known as production indifference curve. So, option (a) is correct.
26. Isoquants are equal to:
(a) Product Lines
(b) Supply line
(c) Cost lines
(d) Demand line
Isoquants are equal to product lines. So, option (a) is correct.
27. During the stage of decreasing returns ————.
(a) AP is zero
(b) MP is decreasing
(c) MP is negative
(d) None of these.
During the stage of decreasing returns, marginal product against use of additional unit of input starts decreasing. So, option (b) is correct.
28. Isocost is also called
(a) Cost line
(b) Production line
(c) Price line
(d) Zero cost line.
ISO cost is also known as price line. So, option (c) is correct.
29. The aggregate supply of land is
(a) Perfectly elastic
(b) Perfectly inelastic
(c) Relatively elastic
(d) None of these.
Aggregate supply of land do not change because total available land is gift of nature. So, the aggregate supply of land is perfectly inelastic. So, option (b) is correct.
30. The law of variable proportion is called
(a) law of increasing returns
(b) law of constant returns
(c) law of decreasing returns
(d) law of returns to scale
The law of variable proportion is also known as law of returns to scale. So, option (d) is correct.
31. The Incentive/Reward in respect of Land is termed
(a) Rent
(b) Wages
(c) Interest
(d) Profit.
Rent is the reward for using the land. So, option (a) is correct.
32. The Incentive/Reward in respect of labour is called :
(a) Rent
(b) Wages
(c) Interest
(d) Profit.
Wages is the reward for using labour. So, option (b) is correct.
33. The Incentive/Reward in respect of Capital is called
(a) Rent
(b) Wages
(c) Interest
(d) Profit.
Interest is the reward for using capital. So, option (c) is correct.
34. The Incentive/Reward in respect of Entrepreneurial Ability is called
(a) Rent
(b) Wages
(c) Interest
(d) Profit.
Profit is the reward for entrepreneurial ability. So, option (d) is correct.
35. If a Resource is lying idle, it will constitute-
(a) Wealth
(b) Capital
(c) Asset
(d) None of the above.
Resources lying idle is called wealth. So, option (a) is correct.
36. Law of Returns to Scale is applicable to-
(a) Medium-run
(b) Short-run
(c) Long-run
(d) None of the above.
Law of Returns to Scale is applicable to Long-run. So, option (c) is correct.
37. ————- = Total Product/Quantity of the Variable Factor.
(a) Total Product
(b) Average product
(c) Marginal Product
(d) None of the above.
Average product = (Total product / Qty. of the variable factor). So, option (b) is correct.
38. ——————-is the addition made to Total Product, by an additional unit of input of the Variable Factor.
(a) Product parts
(b) Average Product
(c) Marginal product
(d) None of the above.
Marginal product is the addition made to total product by additional one unit of input of the variable factor. So, option (c) is correct.
39. Total Product (TP) increases, marginal Product (MP) will be-
(a) Positive
(b) Negative
(c) Zero
(d) None of these.
If total product increases, marginal product must be positive. So, option (a) is correct.
40. If Total Product (TP) increases at an increasing rate, Marginal Product (MP) will be-
(a) Increasing
(b) Decreasing
(c) Zero
(d) One.
If total product increase at an increasing rate, marginal product will also be increasing at increasing rate. So, option (a) is correct.
41. If Total Product (TP) increases at a decreasing rate, Marginal Product (MP) will be
(a) Increasing
(b) Decreasing
(c) One
(d) Infinity.
If total product is increasing at a decreasing rate, marginal product will be decreasing. So, option (b) is correct.
42. What is the maximum point of TP?
(a) When AP becomes zero
(b) When MP becomes zero
(c) At the interesting point of AP & MP
(d) All of these.
When marginal product is zero, total product is maximum. So, option (b) is correct.
43. if TP decreases, MP will be :
(a) Positive
(b) Negative
(c) Zero
(d) One.
If total product starts to decrease marginal product must be negative. So, option (b) is correct.
44. Marginal Product (MP) Curve :
(a) Is perpendicular to X Axis
(b) Is perpendicular to Y Axis
(c) First decreases, reaches a minimum, and then increases
(d) First increases, reaches a maximum, and then decreases.
Point of inflexion is the point where marginal product is maximum. So, option (d) is correct.
45. Average Product (AP) Curve :
(a) Is perpendicular to X Axis
(b) Is perpendicular to Y Axis
(c) First decreases, reaches a minimum, and then increases
(d) First increases, reaches a maximum, and then decreases.
Average Product (AP) Curve First increases, reaches a maximum, and then decreases. So, option (d) is correct.
46. The point where MP is maximum is called :
(a) Point of decrease
(b) Point of Indifference
(c) Point of Inflexion
(d) Point of equilibrium.
The point where MP is maximum is called point of inflexion. So, option (c) is correct.
47. When Average Product (AP) is at its maximum
(a) MP < AP < TP
(b) MP = AP > TP
(c) MP > AP
(d) MP ¹ 0.
When marginal product curve cuts average product curve, average product is maximum at this point. At this point,
Marginal product = Average product. So, option (b) is correct.
48. When Marginal Product (MP) = Average product (AP), it means that AP is :
(a) At its maximum
(b) At its minimum
(c) Zero
(d) Infinity.
Marginal Product (MP) = Average product (AP), it means that AP is at its maximum . So, option (a) is correct.
49. The Law of Returns to Scale operates will apply in
(a) Medium-run
(b) Short-run
(c) Long-run
(d) none of the above.
Law of return to scale operate only in long run. So, option (c) is correct.
50. In the short run :
(a) labour is fixed
(b) capital is fixed
(c) both labour & capital is fixed
(d) none of the above.
In long run, labour & capital both is variable. In short run, labour is variable but capital is fixed. So, option (b) is correct.
51. When marginal product is zero, then total product is :
(a) Maximum
(b) Increasing
(c) Zero
(d) Negative.
At equilibrium point marginal product is zero. At equilibrium point total product is maximum. After crossing the equilibrium point marginal product starts to become negative and as a result total product starts decreasing. So, option (a) is correct.
52. Diminishing marginal returns means :
(a) Decreasing average profit
(b) Decreasing marginal costs
(c) Increasing marginal cost
(d) None of these.
Diminishing marginal returns implies Increasing marginal cost. So, option (c) is correct.
53. When AP is maximum :
(a) AP > MP > TP
(b) AP < MP < TP
(c) AP = MP
(d) none of these.
When AP is maximum, AP = MP. So, option (c) is correct.
54. The law of diminishing marginal returns indicates that marginal returns :
(a) always diminish.
(b) sometimes diminish.
(c) eventually diminish
(d) None of these.
The law of diminishing marginal returns indicates that marginal returns eventually diminish. So, option (c) is correct.
55. Which cost increases continuously with the increase in production?
(a) Average fixed cost
(b) Marginal cost
(c) Fixed cost
(d) Variable cost
Variable costs are directly related with the level of production. Thus with the increase in the level of production, variable cost also increases. So, option (d) is correct.
56. A firm’s average total cost is Rs.300 at 5 units of output and Rs. 320 at 6 units of output. The marginal cost of producing the 6th unit is:
(a) Rs.20
(b) Rs.60
(c) Rs.120
(d) Rs.420
TC( 5 units ) = 300 x 5 = 1500, TC( 6 units ) = 320 x 6 = 1920, So Marginal Cost of 6th unit =1920-1500=420. So, option (d) is correct.
57. 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) Fixed cost
With expansion of output, long run average cost curve (LAC) falls due to economics of scale. So, option (b) is correct.
58. The marginal product curve is above the average product curve when the average product is:
(a) Rising
(b) Declining
(c) Unchanged
(d) None
When average product is increasing, the marginal product curve is above the average product curve. So, option (a) is correct.
59. An Isoquant is ——– to an iso cost line at equilibrium point:
(a) Horizontal
(b) Concave
(c) Tangent
(d) Perpendicular
A Isoquant is tangent to an iso cost at equilibrium point. So, option (c) is correct.
60. At the point of inflexion, the marginal product is:
(a) Rising
(b) Falling
(c) Maximum
(d) Minimum
At point of inflexion, the marginal product is maximum. So, option (c) is correct.
61. 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
If average product of labour is falling, then marginal product of labour is below the average product of labour. So, option (c) is correct.
62. Change in total revenue due to incremental change in quantity supplied is called:
(a) Marginal Revenue
(b) Marginal profit
(c) Total Revenue
(d) Average Change
Marginal revenue implies change in total revenue due to unit change in quantity supplied. Average revenue implies total revenue divided by total quantity supplied. So, option (a) is correct.
63. At 1 unit of Labour Input, the Output is 100. The Marginal output of 2nd unit of Labour is 80. What is the total Output of 2 units of labour.
(a) -20
(b) 240
(c) 180
(d) 280
When two unit of labour are employed, total output will be 100+80 = 180. So, option (c) is correct.
