CUET Economics - Micro - Production & Costs | Free Questions - Page 4

Q1:

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.

Calculate total cost of production for producing 100 vases ?

50,000

60,000

25,000

40,000

Correct Answer

Option 1

Correct Answer

Explanation

Q2:

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 will be the average variable cost (AVC) for producing 200 vases?

150

300

250

600

Correct Answer

Option 2

Correct Answer

Explanation

Q3:

2025: 29 May Shift 2

Micro

>

Production & Costs

Medium

The shape of the average fixed cost curve is ........................

Upward sloping

Rectangular hyperbola

Vertical

Horizontal

Correct Answer

Option 2

Correct Answer

Explanation

Q4:

2025: 29 May Shift 2

Micro

>

Production & Costs

Medium

In a production function $q = f(x_1, x_2)$ where the firm produces q output using $x_1$ of factor 1 and $x_2$ of factor 2. Now suppose the firm decides to increase the employment level of both the factors t (t > 1) times. then which among the following is correct?

$f(tx_1, tx_2) > t f(x_1, x_2)$ i.e. constant returns to scale.

$f(tx_1, tx_2) < t f(x_1, x_2)$ i.e increasing returns to scale.

$f(tx_1, tx_2) < t f(x_1, x_2)$ i.e decreasing returns to scale.

$f(tx_1, tx_2) = t f(x_1, x_2)$ i.e decreasing returns to scale.

Correct Answer

Option 3

Correct Answer

Explanation

Q5:

2025: 29 May Shift 2

Micro

>

Production & Costs

Medium

Which statement is incorrect in the context of relationship between AVC and SMC?

As long as AVC is falling, SMC must be less than the AVC.

SMC curve cuts the AVC curve from below at the minimum point of AVC.

As AVC rises, SMC must be greater than the AVC.

SMC curve cuts the AVC curve from below at the minimum point of SMC.

Correct Answer

Option 4

Correct Answer

Explanation

Q6:

2025: 29 May Shift 2

Micro

>

Production & Costs

Hard

Arrange the following statements in chronological order in respect to the impact of a unit tax on supply:

(A) Imposition of unit tax increases the price of commodities.

(B) Increased prices will lead to an increase in LRAC and LRMC.

(C) The firm's long run supply curve shifts to the left.

(D) At any given market price, the firm supplies fewer units of output.

Choose the correct answer from the options given below:

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

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

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

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

Correct Answer

Option 1

Correct Answer

Explanation

Q7:

2025: 29 May Shift 2

Micro

>

Production & Costs

Medium

When the output added by each additional worker is proportionally less, what it shows?

Marginal product fall and average product rises.

Marginal product rises.

Marginal product falls.

Marginal product rise and average product falls.

Correct Answer

Option 3

Correct Answer

Explanation

Q8:

2025: 29 May Shift 2

Micro

>

Production & Costs

Medium

Match List-I with List-II

List-I	List-II
(A) Production function	(I) $f(tx_1, tx_2) > t f(x_1, x_2)$
(B) Constant returns to scale	(II) $f(tx_1, tx_2) < t f(x_1, x_2)$
(C) Increasing returns to scale	(III) $f(x_1, x_2)$
(D) Decreasing returns to scale	(IV) $f(tx_1, tx_2) = t f(x_1, x_2)$

Choose the correct answer from the options given below:

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

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

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

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

Correct Answer

Option 4

Correct Answer

Explanation

Q9:

2025: 29 May Shift 2

Micro

>

Production & Costs

Medium

Choose the correct equations in the context of costs.

(A) TFC = AFC × quantity

(B) LRMC = (TC at $q_n$ units) – (TC at $q_{n-1}$ units)

(C) TC = TVC × TFC

(D) LRAC = TC/q

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 1

Correct Answer

Explanation

Q10:

2025: 29 May Shift 2

Micro

>

Production & Costs

Medium

The set of all possible combinations of the two inputs that yield the same maximum possible level of output is known as...........

Isocost.

Indifference curve.

Isoquant.

Budget line.

Correct Answer

Option 3

Correct Answer

Explanation

Q11:

2025: 29 May Shift 1

Micro

>

Production & Costs

Easy

The relationship between inputs and outputs of a firm is given by ___________

Cost Function

Production function

Opportunity cost

Revenue function

Correct Answer

Option 2

Correct Answer

Explanation

Q12:

2025: 29 May Shift 1

Micro

>

Production & Costs

Easy

The slope of Production Possibility curve is represented by ___________.

Marginal rate of substitution

Marginal rate of Transformation

Marginal rate of Exchange

Opportunity Cost

Correct Answer

Option 2

Correct Answer

Explanation

Q13:

2025: 29 May Shift 1

Micro

>

Production & Costs

Medium

A firm will shut down in the short run if__________.

Price < Average Variable Cost.

Price < Average Fixed Cost.

Total Revenue > Total Cost.

Price = Average Cost.

Correct Answer

Option 1

Correct Answer

Explanation

Q14:

2025: 29 May Shift 1

Micro

>

Production & Costs

Easy

Comprehension:

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

Demand and Technology

Consider the case of a local coffee shop that faces rising demand for its products. In response to the increase in demand, the shop owner decided to increase the price of a cup of coffee. As a result, suppliers in the market respond by increasing their supply, hoping to capitalize on the higher price. If the coffee shop invests in a new espresso machine that makes coffee more efficiently, the cost of producing each cup decreases. This leads to an increase in supply and sell more coffee at the same or lower price, benefiting both the producers and consumers. This cost-reduction technology is helpful in the context of the real world.

Which of the following is an example of Cost-Reduction Technology in a business?

Increased advertising cost.

Implementation of a new machine that speeds up production.

Raising prices to increase revenue.

Hiring more employees to expand the business.

Correct Answer

Option 2

Correct Answer

Explanation

Q15:

2025: 29 May Shift 1

Micro

>

Production & Costs

Easy

Comprehension:

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

Demand and Technology

Consider the case of a local coffee shop that faces rising demand for its products. In response to the increase in demand, the shop owner decided to increase the price of a cup of coffee. As a result, suppliers in the market respond by increasing their supply, hoping to capitalize on the higher price. If the coffee shop invests in a new espresso machine that makes coffee more efficiently, the cost of producing each cup decreases. This leads to an increase in supply and sell more coffee at the same or lower price, benefiting both the producers and consumers. This cost-reduction technology is helpful in the context of the real world.

In Microeconomics, what does supply refer to?

The total amount of goods and services which consumers are willing to buy.

The total amount of goods and services which producers are willing to sell at different price.

The total market demand for a product.

The amount of goods produced by the government.

Correct Answer

Option 2

Correct Answer

Explanation

Q16:

2025: 29 May Shift 1

Micro

>

Production & Costs

Medium

Comprehension:

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

Demand and Technology

Consider the case of a local coffee shop that faces rising demand for its products. In response to the increase in demand, the shop owner decided to increase the price of a cup of coffee. As a result, suppliers in the market respond by increasing their supply, hoping to capitalize on the higher price. If the coffee shop invests in a new espresso machine that makes coffee more efficiently, the cost of producing each cup decreases. This leads to an increase in supply and sell more coffee at the same or lower price, benefiting both the producers and consumers. This cost-reduction technology is helpful in the context of the real world.

In the above paragraph, which factor is affecting the supply of Coffee?

Change in consumer's preference.

Change in price of related goods.

Advancement of technology.

Government policy.

Correct Answer

Option 3

Correct Answer

Explanation

Q17:

2025: 29 May Shift 1

Micro

>

Production & Costs

Easy

Comprehension:

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

Demand and Technology

Consider the case of a local coffee shop that faces rising demand for its products. In response to the increase in demand, the shop owner decided to increase the price of a cup of coffee. As a result, suppliers in the market respond by increasing their supply, hoping to capitalize on the higher price. If the coffee shop invests in a new espresso machine that makes coffee more efficiently, the cost of producing each cup decreases. This leads to an increase in supply and sell more coffee at the same or lower price, benefiting both the producers and consumers. This cost-reduction technology is helpful in the context of the real world.

What is the main purpose of Cost Reduction Technologies in business?

To increase demand for a product.

To maintain price level and to increase profit margins.

To maintain high price in the market.

To reduce number of suppliers in the market.

Correct Answer

Option 2

Correct Answer

Explanation

Q18:

2025: 29 May Shift 1

Micro

>

Production & Costs

Easy

Comprehension:

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

Demand and Technology

Consider the case of a local coffee shop that faces rising demand for its products. In response to the increase in demand, the shop owner decided to increase the price of a cup of coffee. As a result, suppliers in the market respond by increasing their supply, hoping to capitalize on the higher price. If the coffee shop invests in a new espresso machine that makes coffee more efficiently, the cost of producing each cup decreases. This leads to an increase in supply and sell more coffee at the same or lower price, benefiting both the producers and consumers. This cost-reduction technology is helpful in the context of the real world.

How does an increase in price affect supply?

It decreases the quantity supplied.

It does not affect the quantity supplied.

It increases the quantity supplied.

It decreases demand.

Correct Answer

Option 3

Correct Answer

Explanation

Q19:

2025: 28 May Shift 2

Micro

>

Production & Costs

Medium

Arrange the following statements in the context of "U" shaped SAC curve.

(A) SAC is the sum of AVC and AFC.

(B) SAC falls when AVC and AFC decrease.

(C) When the fall in AFC is greater than the rise in AVC and SAC is still falling.

(D) When a rise in AVC becomes greater than the fall in AFC, SAC rises.

Choose the correct answer from the options given below:

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

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

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

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

Correct Answer

Option 1

Correct Answer

Explanation

Q20:

2025: 28 May Shift 2

Micro

>

Production & Costs

Easy

Which of the following states that "The marginal product of a factor input initially rises with its employment level, but after reaching a certain level of employment, it starts falling"?

Diminishing Returns to Scale.

Law of Variable Proportions.

Law of Diminishing Marginal Rate of Substitution.

Increasing Returns to Scale.

Correct Answer

Option 2

Correct Answer

Explanation

Q21:

2025: 28 May Shift 2

Micro

>

Production & Costs

Hard

At the positive level of output, where a firm's profit is maximized, the following conditions must hold.

(A) $p = LRMC$

(B) LRMC is non-decreasing at $q_0$

(C) $p \leq LRAC$

(D) $p \geq$ min. LRAC

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 1

Correct Answer

Explanation

Q22:

2025: 28 May Shift 2

Micro

>

Production & Costs

Medium

Choose the correct statements in respect of returns to scale.

(A) Decreasing returns to scale occur when a proportional increase in all inputs is less than output.

(B) Constant returns to scale occur when a proportional increase in all inputs is the same as output.

(C) In the long run, factors of production are increased by the same proportion, or factors are scaled up.

(D) Increasing returns to scale occur when a proportional increase in all inputs is less than output.

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

Q23:

2025: 28 May Shift 2

Micro

>

Production & Costs

Medium

At the market price of Rs 10, a firm supplies 200 units of a good. If the market price increases to Rs 30, and the price elasticity of the firm's supply is 2. Then at new price what quantity will be supplied by the firm?

1200

1400

1000

800

Correct Answer

Option 3

Correct Answer

Explanation

Q24:

2025: 28 May Shift 2

Micro

>

Production & Costs

Easy

Comprehension:

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

Short run Costs

In the short run, some of the factors of production cannot be varied. The cost that a firm incurs to employ fixed inputs is called the total fixed cost. Whatever amount of output the firm produces, this cost remains fixed for the firm. To produce any required level of output, the firm, in the short run, can adjust only variable inputs. Accordingly, the cost that a firm incurs to employ these variable inputs is called the total variable cost. Adding the fixed and the variable costs, we get the total cost of a firm. In order to increase the production of output, the firm must employ more of the variable inputs. As a result, the total variable cost and total cost will increase. Therefore, as output increases, the total variable cost and total cost increase. Marginal cost is the increase in total variable cost due to an increase in production of one extra unit of output. For any level of output, the sum of marginal costs up to that level gives us the total variable cost at that level.

An increase in production of one extra unit of output will lead to an increase in ..........

Marginal Cost.

Total Fixed Cost.

Total Variable Cost.

Average Cost.

Correct Answer

Option 3

Correct Answer

Explanation

Q25:

2025: 28 May Shift 2

Micro

>

Production & Costs

Medium

Comprehension:

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

Short run Costs

In the short run, some of the factors of production cannot be varied. The cost that a firm incurs to employ fixed inputs is called the total fixed cost. Whatever amount of output the firm produces, this cost remains fixed for the firm. To produce any required level of output, the firm, in the short run, can adjust only variable inputs. Accordingly, the cost that a firm incurs to employ these variable inputs is called the total variable cost. Adding the fixed and the variable costs, we get the total cost of a firm. In order to increase the production of output, the firm must employ more of the variable inputs. As a result, the total variable cost and total cost will increase. Therefore, as output increases, the total variable cost and total cost increase. Marginal cost is the increase in total variable cost due to an increase in production of one extra unit of output. For any level of output, the sum of marginal costs up to that level gives us the total variable cost at that level.

The total cost is equal to Rs.95 for 7 units of output and Rs.115 for 8 units of output. What is the marginal cost at the quantity of 8th unit?

Rs.15

Rs.10

Rs.20

Rs.25

Correct Answer

Option 3

Correct Answer

Explanation

Q26:

2025: 28 May Shift 2

Micro

>

Production & Costs

Easy

Comprehension:

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

Short run Costs

In the short run, some of the factors of production cannot be varied. The cost that a firm incurs to employ fixed inputs is called the total fixed cost. Whatever amount of output the firm produces, this cost remains fixed for the firm. To produce any required level of output, the firm, in the short run, can adjust only variable inputs. Accordingly, the cost that a firm incurs to employ these variable inputs is called the total variable cost. Adding the fixed and the variable costs, we get the total cost of a firm. In order to increase the production of output, the firm must employ more of the variable inputs. As a result, the total variable cost and total cost will increase. Therefore, as output increases, the total variable cost and total cost increase. Marginal cost is the increase in total variable cost due to an increase in production of one extra unit of output. For any level of output, the sum of marginal costs up to that level gives us the total variable cost at that level.

The firm must employ more of the variable inputs, in order to increase the production of output. Therefore, as output increases

Total Variable Cost and Total Cost increase.

Total Variable Cost and Total Cost decrease.

Total Variable Cost decrease and Total Cost increase.

Total Variable Cost increase and Total Cost decrease.

Correct Answer

Option 1

Correct Answer

Explanation

Q27:

2025: 28 May Shift 2

Micro

>

Production & Costs

Easy

Comprehension:

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

Short run Costs

In the short run, some of the factors of production cannot be varied. The cost that a firm incurs to employ fixed inputs is called the total fixed cost. Whatever amount of output the firm produces, this cost remains fixed for the firm. To produce any required level of output, the firm, in the short run, can adjust only variable inputs. Accordingly, the cost that a firm incurs to employ these variable inputs is called the total variable cost. Adding the fixed and the variable costs, we get the total cost of a firm. In order to increase the production of output, the firm must employ more of the variable inputs. As a result, the total variable cost and total cost will increase. Therefore, as output increases, the total variable cost and total cost increase. Marginal cost is the increase in total variable cost due to an increase in production of one extra unit of output. For any level of output, the sum of marginal costs up to that level gives us the total variable cost at that level.

In the short run, some of the factors of production of a firm ......

Flexible.

Remain Constant.

Increases.

Decreases.

Correct Answer

Option 2

Correct Answer

Explanation

Q28:

2025: 28 May Shift 2

Micro

>

Production & Costs

Medium

Comprehension:

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

Short run Costs

In the short run, some of the factors of production cannot be varied. The cost that a firm incurs to employ fixed inputs is called the total fixed cost. Whatever amount of output the firm produces, this cost remains fixed for the firm. To produce any required level of output, the firm, in the short run, can adjust only variable inputs. Accordingly, the cost that a firm incurs to employ these variable inputs is called the total variable cost. Adding the fixed and the variable costs, we get the total cost of a firm. In order to increase the production of output, the firm must employ more of the variable inputs. As a result, the total variable cost and total cost will increase. Therefore, as output increases, the total variable cost and total cost increase. Marginal cost is the increase in total variable cost due to an increase in production of one extra unit of output. For any level of output, the sum of marginal costs up to that level gives us the total variable cost at that level.

When the output is zero in the short run. Which of the following costs are undefined?

AVC, AFC and MC.

AFC and TC.

VC and MC.

TC and FC.

Correct Answer

Option 1

Correct Answer

Explanation

Q29:

2025: 28 May Shift 1

Micro

>

Production & Costs

Easy

How is the value of the average product calculated in the short-run?

By dividing the total product by the number of labor.
By dividing the change in total product by the change in labor.
By dividing the change in total product by the number of labor.
By dividing the total product by the change in labor.

By dividing the total product by the number of labor.

By dividing the change in total product by the change in labor.

By dividing the change in total product by the number of labor.

By dividing the total product by the change in labor.

Correct Answer

Option 1

Correct Answer

Explanation

Q30:

2025: 28 May Shift 1

Micro

>

Production & Costs

Medium

What does the rectangle OVBq₀ depicts in the given figure?

Average variable cost

Average cost

Total variable cost

Total cost

Correct Answer

Option 3

Correct Answer

Explanation

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