CUET Economics - Micro - Production & Costs | Free Questions - Page 3

Q1:

2025: 2 June Shift 1

Micro

>

Production & Costs

Medium

Under perfect competition, for the producer to be in equilibrium:

AR = MR = AC and AC must be rising.

AR = MR = MC and MC must be falling.

AR = MR = TC and TC must be rising.

AR = MR = MC and MC must be rising.

Correct Answer

Option 4

Correct Answer

Explanation

Q2:

2025: 2 June Shift 1

Micro

>

Production & Costs

Medium

When Marginal Product is constant?

Total Product is also constant.

Total Product is zero.

Total Product is increasing at a constant rate.

Total Product is decreasing at a constant rate.

Correct Answer

Option 3

Correct Answer

Explanation

Q3:

2025: 2 June Shift 1

Micro

>

Production & Costs

Medium

Average Fixed Cost (AFC) is indicated by?

A rectangular hyperbola.

A straight line parallel to X axis.

A straight line parallel to Y axis.

A U- shaped curve.

Correct Answer

Option 1

Correct Answer

Explanation

Q4:

2025: 2 June Shift 1

Micro

>

Production & Costs

Medium

Stages of production are the consequences of:

Law of Diminishing Marginal Rate of Transformation.

Law of Diminishing Marginal Utility.

Law of Variable Proportions.

Law of Diminishing Returns to Scale.

Correct Answer

Option 3

Correct Answer

Explanation

Q5:

2025: 31 May Shift 1

Micro

>

Production & Costs

Medium

Select the INCORRECT condition for profit maximisation in the perfect market.

The price must equal to MC.
Marginal cost must be non-decreasing.
Price must be less than the average cost.
Price must be greater than the average cost.

The price must equal to MC.

Marginal cost must be non-decreasing.

Price must be less than the average cost.

Price must be greater than the average cost.

Correct Answer

Option 3

Correct Answer

Explanation

Q6:

2025: 31 May Shift 1

Micro

>

Production & Costs

Medium

The firm's total variable cost at output q₁ is

The area of rectangle OpAq₁

The area of rectangle OEBq₁

the area of rectangle OpAq₁ – the area of rectangle OEBq₁

tan Θ

Correct Answer

Option 2

Correct Answer

Explanation

Q7:

2025: 31 May Shift 1

Micro

>

Production & Costs

Medium

From the following which is incorrect with respect to firm's profit maximization in long run?

Price = Long Run Marginal Cost
LRMC is first decreasing and then increasing
Price = Short Run Marginal Cost
Price ≥ Long Run Average Variable Cost

Price = Long Run Marginal Cost

LRMC is first decreasing and then increasing

Price = Short Run Marginal Cost

Price ≥ Long Run Average Variable Cost

Correct Answer

Option 3

Correct Answer

Explanation

Q8:

2025: 31 May Shift 1

Micro

>

Production & Costs

Medium

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Law of Variable Proportion and Return to Scale.

The law of variable proportions arises because factor proportions change as long as one factor is held constant and the other is increased. What if both factors can change? Remember that this can happen only in the long run. When a proportional increase in all inputs results in an increase in output by the same proportion, the production function is said to display Constant returns to scale (CRS).

When a proportional increase in all inputs results in an increase in output by a larger proportion, the production function is said to display Increasing Returns to Scale (IRS). Decreasing Returns to Scale (DRS) holds when a proportional increase in all inputs results in an increase in output by a smaller proportion.

The core reason behind the arising law of proportion is............

Factor proportion changes with keeping one factor constant.

Decrease in all input.

Increase in all input.

All factors remain constant.

Correct Answer

Option 1

Correct Answer

Explanation

Q9:

2025: 31 May Shift 1

Micro

>

Production & Costs

Medium

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Law of Variable Proportion and Return to Scale.

The law of variable proportions arises because factor proportions change as long as one factor is held constant and the other is increased. What if both factors can change? Remember that this can happen only in the long run. When a proportional increase in all inputs results in an increase in output by the same proportion, the production function is said to display Constant returns to scale (CRS).

When a proportional increase in all inputs results in an increase in output by a larger proportion, the production function is said to display Increasing Returns to Scale (IRS). Decreasing Returns to Scale (DRS) holds when a proportional increase in all inputs results in an increase in output by a smaller proportion.

When output increases with smaller proportion compare to increase in inputs, this return is called?

Decreasing Return to scale
Increasing Return to scale.
Constant Return to scale.
Incremental Productivity.

Decreasing Return to scale

Increasing Return to scale.

Constant Return to scale.

Incremental Productivity.

Correct Answer

Option 1

Correct Answer

Explanation

Q10:

2025: 31 May Shift 1

Micro

>

Production & Costs

Medium

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Law of Variable Proportion and Return to Scale.

The law of variable proportions arises because factor proportions change as long as one factor is held constant and the other is increased. What if both factors can change? Remember that this can happen only in the long run. When a proportional increase in all inputs results in an increase in output by the same proportion, the production function is said to display Constant returns to scale (CRS).

When a proportional increase in all inputs results in an increase in output by a larger proportion, the production function is said to display Increasing Returns to Scale (IRS). Decreasing Returns to Scale (DRS) holds when a proportional increase in all inputs results in an increase in output by a smaller proportion.

Suppose in a production process, all inputs get doubled. As a result, if the output gets doubled, the production function exhibits?

Decreasing Return to scale.
Incresing Returns to scale.
Constant Return to scale.
Decresing Productivity.

Decreasing Return to scale.

Incresing Returns to scale.

Constant Return to scale.

Decresing Productivity.

Correct Answer

Option 3

Correct Answer

Explanation

Q11:

2025: 31 May Shift 1

Micro

>

Production & Costs

Medium

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Law of Variable Proportion and Return to Scale.

The law of variable proportions arises because factor proportions change as long as one factor is held constant and the other is increased. What if both factors can change? Remember that this can happen only in the long run. When a proportional increase in all inputs results in an increase in output by the same proportion, the production function is said to display Constant returns to scale (CRS).

When a proportional increase in all inputs results in an increase in output by a larger proportion, the production function is said to display Increasing Returns to Scale (IRS). Decreasing Returns to Scale (DRS) holds when a proportional increase in all inputs results in an increase in output by a smaller proportion.

When output increases with the same proportion as increase in inputs, this concept is known by?

Marginal diminishing returns.
Decreasing return to scale.
Increasing return to scale.
Constant Return to scale.

Marginal diminishing returns.

Decreasing return to scale.

Increasing return to scale.

Constant Return to scale.

Correct Answer

Option 4

Correct Answer

Explanation

Q12:

2025: 31 May Shift 1

Micro

>

Production & Costs

Medium

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Law of Variable Proportion and Return to Scale.

The law of variable proportions arises because factor proportions change as long as one factor is held constant and the other is increased. What if both factors can change? Remember that this can happen only in the long run. When a proportional increase in all inputs results in an increase in output by the same proportion, the production function is said to display Constant returns to scale (CRS).

When a proportional increase in all inputs results in an increase in output by a larger proportion, the production function is said to display Increasing Returns to Scale (IRS). Decreasing Returns to Scale (DRS) holds when a proportional increase in all inputs results in an increase in output by a smaller proportion.

When output increases with the larger proportion compare to increase in inputs, this return is called?

Decreasing Return to scale.
Increasing return to scale.
Constant Return to scale.
Diminishing Marginal Product.

Decreasing Return to scale.

Increasing return to scale.

Constant Return to scale.

Diminishing Marginal Product.

Correct Answer

Option 2

Correct Answer

Explanation

Q13:

2025: 30 May Shift 2

Micro

>

Production & Costs

Medium

From the following which production function exhibits increasing returns to scale?

$f(tx, ty) > t f(x, y)$ .

$f(tx, ty) < t f(x, y)$ .

$f(tx, ty) = t f(x, y)$ .

$x^α y^β$ .

Correct Answer

Option 1

Correct Answer

Explanation

Q14:

2025: 30 May Shift 2

Micro

>

Production & Costs

Medium

Choose the correct statements from the options given below in terms of the shapes of the short run cost curves.

(A) Average fixed cost curve is a rectangular hyperbola.

(B) Total fixed cost is horizontal straight line.

(C) Average variable cost is upward sloping.

(D) Marginal cost is U shaped.

Choose the correct answer from the options given below:

(A), (C) and (D) only

(A), (B) and (D) only

(A), (B), (C) and (D)

(B), (C) and (D) only

Correct Answer

Option 2

Correct Answer

Explanation

Q15:

2025: 30 May Shift 2

Micro

>

Production & Costs

Easy

The collection of all possible combinations of goods and services that can be produced from a given amount of resources and a given stock of technological knowledge.

Production Possibility Frontier.

Production Possibility Set.

Isoquant Curve.

Production Function.

Correct Answer

Option 2

Correct Answer

Explanation

Q16:

2025: 30 May Shift 2

Micro

>

Production & Costs

Medium

A firm wishes to maximize its profit, find the correct conditions from the following, that must be held by the firm at q₂ at which its profit is maximum.

(A) The price must be less than the average variable cost

(B) The price must be greater than the average variable cost

(C) Marginal cost must be non-decreasing

(D) The price, p, must equal MC

Choose the correct answer from the options given below:

(A), (B) and (D) only

(A), (C) and (D) only

(A), (B), (C) and (D)

(B), (C) and (D) only

Correct Answer

Option 4

Correct Answer

Explanation

Q17:

2025: 30 May Shift 2

Micro

>

Production & Costs

Medium

Match List-I with List-II

List-I	List-II
(A) Production function	(I) $x_1^α x_2^β$
(B) Constant return to scale	(II) $α + β = 1$
(C) Increasing return to scale	(III) $α + β < 1$
(D) Decreasing return to scale	(IV) $α + β > 1$

Choose the correct answer from the options given below:

(A) - (II), (B) - (I), (C) - (III), (D) - (IV)

(A) - (I), (B) - (II), (C) - (III), (D) - (IV)

(A) - (I), (B) - (II), (C) - (IV), (D) - (III)

(A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Correct Answer

Option 3

Correct Answer

Explanation

Q18:

2025: 30 May Shift 2

Micro

>

Production & Costs

Medium

Arrange the given statements to show the impact on a firm's supply curve due to its determinants.

(A) Organisational innovation allows the firm to use fewer units of inputs.

(B) Any factor that affects a firm's marginal cost curve is a determinant of its supply curve.

(C) At any given market price, the firm now supplies more units of output.

(D) The marginal cost will shift downward.

Choose the correct answer from the options given below:

(A), (B), (C), (D)

(B), (A), (C), (D)

(B), (A), (D), (C)

(C), (B), (D), (A)

Correct Answer

Option 3

Correct Answer

Explanation

Q19:

2025: 30 May Shift 2

Micro

>

Production & Costs

Medium

The point of minimum average cost at which the supply curve cuts the long run average cost curve is called?

Super Normal Profit.

Opportunity cost.

Break Even Point.

Shut Down Point.

Correct Answer

Option 3

Correct Answer

Explanation

Q20:

2025: 30 May Shift 2

Micro

>

Production & Costs

Medium

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Long Run Costs

In the long run, all inputs are variable. There are no fixed costs. The total cost and the total variable cost therefore, coincide in the long run. Long run marginal cost is the change in total cost per unit of change in output. Increasing returns to scale implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. Decreasing returns to scale implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. Constant returns to scale implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. The LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed. For the first unit of output, both LRMC and LRAC are the same. Then, as output increases, LRAC initially falls, and then, after a certain point, it rises. As long as average cost is falling, marginal cost must be less than the average cost. When the average cost is rising, marginal cost must be greater than the average cost. LRMC cuts the LRAC curve from below at the minimum point of the LRAC.

The equation of long-run marginal cost.

TC/q

(TC at q₁ units) – (TC at q₁ – 1 units)

TVC/q

TFC/q

Correct Answer

Option 2

Correct Answer

Explanation

Q21:

2025: 30 May Shift 2

Micro

>

Production & Costs

Medium

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Long Run Costs

In the long run, all inputs are variable. There are no fixed costs. The total cost and the total variable cost therefore, coincide in the long run. Long run marginal cost is the change in total cost per unit of change in output. Increasing returns to scale implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. Decreasing returns to scale implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. Constant returns to scale implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. The LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed. For the first unit of output, both LRMC and LRAC are the same. Then, as output increases, LRAC initially falls, and then, after a certain point, it rises. As long as average cost is falling, marginal cost must be less than the average cost. When the average cost is rising, marginal cost must be greater than the average cost. LRMC cuts the LRAC curve from below at the minimum point of the LRAC.

As long as decreasing returns to scale operates, as the firm increases output, the average cost must be ................

Rising

Falling

Constant

Equal to output

Correct Answer

Option 1

Correct Answer

Explanation

Q22:

2025: 30 May Shift 2

Micro

>

Production & Costs

Medium

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Long Run Costs

In the long run, all inputs are variable. There are no fixed costs. The total cost and the total variable cost therefore, coincide in the long run. Long run marginal cost is the change in total cost per unit of change in output. Increasing returns to scale implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. Decreasing returns to scale implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. Constant returns to scale implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. The LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed. For the first unit of output, both LRMC and LRAC are the same. Then, as output increases, LRAC initially falls, and then, after a certain point, it rises. As long as average cost is falling, marginal cost must be less than the average cost. When the average cost is rising, marginal cost must be greater than the average cost. LRMC cuts the LRAC curve from below at the minimum point of the LRAC.

The optimum output will be when the relationship between LRMC and LRAC.

LRAC cut LRMC from above at the minimum point LRAC.

LRAC cut LRMC from below at the minimum point LRAC.

LRMC cut LRAC from above at the minimum point LRAC.

LRMC cut LRAC from below at the minimum point of LRAC.

Correct Answer

Option 4

Correct Answer

Explanation

Q23:

2025: 30 May Shift 2

Micro

>

Production & Costs

Medium

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Long Run Costs

In the long run, all inputs are variable. There are no fixed costs. The total cost and the total variable cost therefore, coincide in the long run. Long run marginal cost is the change in total cost per unit of change in output. Increasing returns to scale implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. Decreasing returns to scale implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. Constant returns to scale implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. The LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed. For the first unit of output, both LRMC and LRAC are the same. Then, as output increases, LRAC initially falls, and then, after a certain point, it rises. As long as average cost is falling, marginal cost must be less than the average cost. When the average cost is rising, marginal cost must be greater than the average cost. LRMC cuts the LRAC curve from below at the minimum point of the LRAC.

in the long run when the average cost is rising, marginal cost must be.

Equal to average cost.

Less than the average cost.

Greater than the average cost.

Falling.

Correct Answer

Option 3

Correct Answer

Explanation

Q24:

2025: 30 May Shift 2

Micro

>

Production & Costs

Medium

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Long Run Costs

In the long run, all inputs are variable. There are no fixed costs. The total cost and the total variable cost therefore, coincide in the long run. Long run marginal cost is the change in total cost per unit of change in output. Increasing returns to scale implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. Decreasing returns to scale implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. Constant returns to scale implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. The LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed. For the first unit of output, both LRMC and LRAC are the same. Then, as output increases, LRAC initially falls, and then, after a certain point, it rises. As long as average cost is falling, marginal cost must be less than the average cost. When the average cost is rising, marginal cost must be greater than the average cost. LRMC cuts the LRAC curve from below at the minimum point of the LRAC.

The shape of the long-run average cost curve and long-run marginal cost curve.

Only LRAC is U shaped.

LRAC is U shaped and LRMC upward sloping.

Rectangular hyperbole.

U shaped.

Correct Answer

Option 4

Correct Answer

Explanation

Q25:

2025: 30 May Shift 1

Micro

>

Production & Costs

Medium

When Marginal productivity starts decreasing but remains positive , Total Productivity is ______.

Decreasing.

Increases at constant rate.

Increases at Increasing rate.

Increases at diminishing rate.

Correct Answer

Option 4

Correct Answer

Explanation

Q26:

2025: 30 May Shift 1

Micro

>

Production & Costs

Easy

At zero level of output ,if the total cost(TC) is 20. What will be the value of the Average Fixed cost (AFC) at the 6th level of output?

2.86

20

3.33

120

Correct Answer

Option 3

Correct Answer

Explanation

Q27:

2025: 30 May Shift 1

Micro

>

Production & Costs

Medium

Which of the following cost curve has the shape of a rectangular hyperbola?

Average Cost Curve.

Marginal Cost Curve.

Average Fixed Cost Curve.

Variable Cost Curve.

Correct Answer

Option 3

Correct Answer

Explanation

Q28:

2025: 30 May Shift 1

Micro

>

Production & Costs

Easy

Read the passage carefully and answer the question based on the passage:

Akriti Manufacturing Company produces flower vases. The cost of production for 100 vase includes rent of rs 10,000, salary for permanent staff of rs 10,000, cost of Labour is 12,000 and Raw material of rs 18,000. Due to increased demand of vases the company plans to increase production to 200 vases. The variable cost per vase remains Rs 300, and the fixed cost does not change.

What is the fixed cost for producing 200 vases?

40000

20,000

10,000

50,000

Correct Answer

Option 2

Correct Answer

Explanation

Q29:

2025: 30 May Shift 1

Micro

>

Production & Costs

Medium

Read the passage carefully and answer the question based on the passage:

Akriti Manufacturing Company produces flower vases. The cost of production for 100 vase includes rent of rs 10,000, salary for permanent staff of rs 10,000, cost of Labour is 12,000 and Raw material of rs 18,000. Due to increased demand of vases the company plans to increase production to 200 vases. The variable cost per vase remains Rs 300, and the fixed cost does not change.

What is the total variable cost for producing 200 vases?

300

30,000

60,000

18,000

Correct Answer

Option 3

Correct Answer

Explanation

Q30:

2025: 30 May Shift 1

Micro

>

Production & Costs

Easy

Read the passage carefully and answer the question based on the passage:

Akriti Manufacturing Company produces flower vases. The cost of production for 100 vase includes rent of rs 10,000, salary for permanent staff of rs 10,000, cost of Labour is 12,000 and Raw material of rs 18,000. Due to increased demand of vases the company plans to increase production to 200 vases. The variable cost per vase remains Rs 300, and the fixed cost does not change.

If the production is increased to 300 vases, what will happen to Fixed cost per unit?

There will be parallel increase in fixed cost and variable cost.

Fixed cost will also increase.

Fixed cost will not change.

Fixed cost will decrease.

Correct Answer

Option 4

Correct Answer

Explanation

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