MCQs Chapter No.

19

1. When a firm make choices, then it has to face _____________:

a) Constraints b) openness c) normalization d) none of these
2. When a firm makes choices the constraints on its behaviour are imposed by:
a) Customers and competitors c) customers and nature
b) Customers, competitors and nature d) competitors and nature
3. Constraints imposed by nature on a firm behaviour when it makes choices, are about:
a) Income levels of customer b) number of competitors c) feasible ways to produce
4. Factors of productions are also known as:
a) Inputs b) outputs c) technology d) all of these
5. Broad categories of factors of production are:
a) Land, labour and capital c) land, labour, capital and raw materials
b) land , labour and raw material d) labour, capital and raw materials
6. Those inputs to production which are themselves produced goods are known as:
a) Labour b) land c) capital goods d) raw materials
7. Sometimes the term capital is also used to describe the money used to start up or maintain a
business. Such terminology about capital is different from capital goods and is known as:
a) Physical capital b) liquid capital c) human capital d) financial capital
8. When a variable is measured in one point of time then such variable is known as _____ variable:
a) Stock b) flow c) constant d) none of these
9. When a variable is measured per period of time i.e. daily, weekly, monthly, yearly etc, then such
variable is known as:
a) Stock b) flow c) constant d) none of these
10. Usually the inputs and outputs of a production function are measure in _______ units:
a) Given b) stock c) flow d) all of these
11. Only certain combinations of inputs are feasible ways to produce a given amount of output.
This is called:
a) Financial constraints b) resource constraints
b) consumer behaviours d) technological constraints
12. The set of all combinations of inputs and outputs that comprise a technologically feasible way to
produce is called a _______ set:
a) Production b) Consumption c) Distribution d) Exchange
13. If inputs are costly then it is reasonable to examine maximum possible output for a given level of
input. Such maximum possible output is known as:
a) Demand b) Boundary c) Wage d) None of these
14. In case of two inputs a convenient way to depict production relations is the:
a) Isoprofit b) Indifference c) Isoquant d) All of these
15. A set of all possible combinations of inputs 1 and 2 that are just sufficient to produce a given
amount of output, is known as:
a) Isoprofit b) Indifference c) Isoquant d) All of these
16. The concept of Isquant is similar to the concept of:
a) Indifference curve b) Isoprofit line c) Level curve d) All of these
17. The difference between isoquant and indifference curve is that former belongs to_______ and
latter belongs to __________:
a) Production / Consumption b) Consumption / Production c) Exchange / Distribution
18. In case of fixed proportions, the production function is written as f(x1, x2) = _______:
a) Max{x1,x2} b) Min{ x1,x2} c) x1 + x2 d) x1 - x2
19. Isoquant in case of fixed proportions look like the indifference curve in case of _______:
a) Perfect substitutes b) Neutrals c) Perfect complements
20. In case of perfect substitutes, the production function is written as f(x1, x2) = _______:
a) Max{x1,x2} b) Min{ x1,x2} c) x1 + x2 d) x1 - x2
21. Isoquant in case of perfect substitutes look like the indifference curve in case of _______:
a) Perfect substitutes b) Neutrals c) Perfect complements
22. Cobb-Douglas production function 𝑓(𝑥1 , 𝑥2 ) = __________ :
a) 𝐴𝑥1 𝑎 𝑥2 𝑎 b) 𝐴𝑥1 𝑎 𝑥2 𝑏 c) 𝐴𝑥1 𝑏 𝑥2 𝑏 d) None of these
23. “If you increase the amount of at least one of the inputs, it should be possible to produce at
least as much output as you were producing originally”. This property of production function is
referred to as:
a) Convexity b) Reflexivity c) Monotonicity d) None of these
24. If you have two ways to produce “Y” units of output i.e. (x1,x2) and (z1,z2); then their weighted
average will produce at least “Y” units of output”. This property of production function is
referred to as:
a) Convexity b) Reflexivity c) Monotonicity d) None of these
25. Change in total product due to a unit change in input factor is called as:
a) Average product b) Marginal product c) Total product d) All of these
26. _____________ measures the tradeoff between two inputs in production with the condition
that output will remain the same:
a) MRS b) MPP c) TRS d) None of these
∆𝑥1
27. TRS = ∆𝑥 = __________: (where x1 and x2 are inputs in production and MP means marginal product)
2
𝑀𝑃1 𝑀𝑃2 𝑀𝑃1
a) b) c) × 𝑥1 d) None of these
𝑀𝑃2 𝑀𝑃1 𝑀𝑃2
28. “Marginal product of a factor will diminish as we get more and more of that factor”. This is the
Law of _________:
a) Increasing returns to scale c) Decreasing returns to scale
b) Diminishing marginal product d) Diminishing marginal utility
29. Law of diminishing marginal product applies only when one input is _______ and all other inputs
are _____________:
a) Fixed / variable b) fixed / quasi fixed c) variable / fixed d) None of these
30. As we increase the amount of factor-1, and adjust factor-2 so as to stay on the same isoquant,
the TRS (technical rate of substitution) ____________:
a) Decreases b) Increases c) Remains same d) None of these
31. The time period during which at least one of the factor of production remains fixed, is known as:
a) Long run b) Short run c) Both of these d) None of these
32. The time period during which all the factors of productions are variable and there is no single
factor which is fixed, is known as:
a) Long run b) Short run c) Both of these d) None of these
33. When all of the factor of production change with the same proportion, then such change is
known as:
a) Diminishing Product b) Equi-Proportions c) Returns to Scale
Answer Key

1. (a) 2. (b) 3. (c) 4. (a) 5. (c) 6. (c)

7. (d) 8. (a) 9. (b) 10. (c) 11. (d) 12. (a)

13. (b) 14. (c) 15. (c) 16. (d) 17. (a) 18. (b)

19. (c) 20. (c) 21. (a) 22. (b) 23. (c) 24. (a)

25. (b) 26. (c) 27. (a) 28. (b) 29. (c) 30. (a)

31. (b) 32. (a) 33. (c)

 Short Questions Chapter No. 19
 Describe technological constraints
 Exemplify the technology regarding “Fixed Proportions”
 Exemplify the technology regarding “Perfect Substitutes”
 Exemplify the technology regarding “Cobb-Douglas”
 Mention the properties of technology
 What is meant by ‘Marginal Product’
 What is meant by ‘Technical Rate of Substitution’
 Write a note on ‘Diminishing Marginal Product’
 Write a note on ‘Diminishing Technical Rate of Substitution’
 Differentiate Long-run and Short-run
 Briefly discuss ‘Returns to Scale’

Long Questions:

 What is meant by Technology? Give any two examples and describe its properties.
 Differentiate Marginal Product and Technical Rate of substitution and explain the process of
diminishing marginal product and diminishing technical rate of substitution.
 Differentiate long-run and short run and discuss ‘Returns to Scale’ in details.
 MCQs Chapter No. 20

I. A market where individual producers take the prices as outside their control is known as a____:
a) Perfect competition b) Monopoly c) Monopolistic competition d) Oligopoly
II. Profits are defined as ________ minus cost:
a) Average revenue b) Total revenue c) Marginal Revenue d) None of these
III. 𝜋 is the profit, 𝑝𝑖 is the price of m outputs 𝑦𝑖 and 𝑤𝑖 is the wage of n inputs 𝑥𝑖 , then
𝜋 = ∑𝑚 𝑖=1 𝑝𝑖 𝑦𝑖 − ____________:
a) ∑𝑛𝑖=1 𝑝𝑖 𝑥𝑖 b) ∑𝑛𝑖=1 𝑤𝑖 𝑦𝑖 c) ∑𝑛𝑖=1 𝑤𝑖 𝑥𝑖 d) None of these
IV. _________ costs are includes in profit maximization process:
a) All of the b) Only explicit c) Only implicit d) None of these
V. If an individual works in his own then his wage is simply __________:
a) Nothing b) Market price of his labour c) The salary if paid d) None of these
VI. The opportunity forgone to do an activity is known as _________:
a) Sunk cost b) Explicit cost c) Opportunity cost d) All of these
VII. Economic profit is different from business profit because economic profit includes ________
costs which business profit does not:
a) Implicit b) Explicit c) Sunk cost d) All of these
VIII. A variable which is measured __________ is known as stock variable:
a) Per unit of time b) At one point of time c) In terms of its units d) None of these
IX. A variable which is measured __________ is known as flow variable:
a) Per unit of time b) At one point of time c) In terms of its units d) None of these
X. In case where well-developed market for rent is not available, then implicit rent is measured by:
a) Depreciation b) Sunk cost c) Total cost d) All of these
XI. It is the _________ of the firms who are responsible for the behavior of the firm:
a) Management b) Owners c) Customers d) None of these
XII. A firm that is owned by a single individual, is known as:
a) Proprietorship b) Partnership c) Corporation d) None of these
XIII. A firm that is owned by two or more individuals, is known as:
a) Proprietorship b) Partnership c) Corporation d) None of these
XIV. A firm that is even owned by several individuals but under law has an existence separate from
that of its owners, is known as:
a) Proprietorship b) Partnership c) Corporation d) None of these
XV. A partnership will last only as long as both partners are _______ to maintain its existence:
a) Alive and agree b) Alive and not willing b) Dead and agree d) None of these
XVI. A _________ can last longer that the lifetimes of any of its owners:
a) Proprietorship b) Partnership c) Corporation d) None of these
XVII. In proprietorship and partnership the owners of the firm usually take ________ role in actually
managing the day-to-day operations of the firm:
a) Direct b) Indirect c) No d) None of these
XVIII. In corporations the owners of the firm usually take a ________ role in actually managing the
day-to-day operations of the firm:
a) Direct b) Indirect c) No d) None of these
XIX. Even firms have different goals to achieve but normally main goal of a firm is ________
maximization:
a) Sales b) Profit c) Welfare d) None of these
 XX. In a corporation the objective is defined by the _______ and followed by the _________:
a) Management / Owners b) Owners / Management c) Owners / Owners
XXI. To value the flow of costs and revenues over time is done properly through the concept of:
a) Present Value b) Future Value c) Current Value d) All of these
XXII. When people can borrow and lend in financial markets, the _________ can be used to define a
natural price of consumption at different times:
a) Profit b) Interest rate c) Inflation d) None of these
XXIII. In a world of perfect certainty where a firm’s flow of future profits is publicly known, then
_______ of those profits would be the present value of the firm:
a) Future value b) Current Value c) Present Value d) None of these
XXIV. The Corporations issues ____________ to represent ownership of shareholders:
a) Stocks b) Bonds c) Repurchases Agreement d) All of these
XXV. The owners in corporation wants the management to choose such production plans which
maximize _____________ of stocks of the firm:
a) Interest b) Profits c) Market Value d) All of these
XXVI. Maximization of the stock market value is even a reasonable concept in the times of ________:
a) Uncertainty b) Certainty c) War d) None of these
XXVII. A factor of production that is given and constant in production process irrespective of output
level:
a) Fixed b) Variable c) Quasi-Fixed d) All of these
XXVIII. A factor of production that is used in different quantities in production process irrespective of
output level:
a) Fixed b) Variable c) Quasi-Fixed d) All of these
XXIX. The factors of productions that must be used in fixed amount, independent of the output of the
firm, as long as output is positive:
a) Fixed b) Variable c) Quasi-Fixed d) All of these
XXX. A curve which shows all the combinations of input goods and output goods that give a constant
level of profit, is known as:
a) Indifference Curve b) Isoquant Curve c) Isoprofit Line d) None of these

Answer Key

1. (a) 2. (b) 3. (c) 4. (a) 5. (b) 6. (c)

7. (a) 8. (b) 9. (a) 10. (a) 11. (b) 12. (a)

13. (b) 14. (c) 15. (a) 16. (c) 17. (a) 18. (b)

19. (b) 20. (b) 21. (a) 22. (b) 23. (c) 24. (a)

25. (c) 26. (a) 27. (a) 28. (b) 29. (c) 30. (c)

Short Questions

Write down note on the followings.

1. Profit
 2. Organization of the firm
3. Profit and Stock Market
4. Boundaries of a Firm
5. Fixed, Variable and Quasi-Fixed Factors of Production
6. Inverse Factor Demand Curve
7. Profit Maximization and Returns to Scale

Long Questions

1. Write down a note on short run profit maximization and derive it mathematically.
2. What would happen to short run profit maximization in case of change in w1, w2, and p?
3. Differentiate short run and long run profit maximization?