MCQ ON CONCEPTS OF COST AND REVENUE

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MCQ ON CONCEPTS OF COST AND REVENUE

Cost analysis refer to the study of __ in relation to different production criteria.
(a) production
(b) cost
(c) price
(d) inputs
Cost is a _ function
(a) direct
(b) derived
(c) both direct and derived
(d) none of the above
Theory of costs is restatement of the theory of _ in monetary terms
(a) demand
(b) consumer’s behaviour
(c) production
(d) all the above
_ costs relate to those costs which involve cash payments by the entrepreneur of the firm.
(a) Accounting
(b) Marginal
(c) Economic
(d) Implicit
Accounting costs are also called _ costs.
(a) economic
(b) implicit
(c) explicit
(d) opportunity
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Wages paid to labourers, cost of raw-materials purchase, interest on the money borrowed, etc. are examples of _ cost.
(i) accounting
(ii) implicit
(iii) economic
(iv) explicit
(a) i and ii
(b) iii and iv
(c) ii and iii
(d) i and iv
Economic costs includes-
(a) Accounting cost + Explicit cost
(b) Accounting cost + Implicit cot
(c) Fixed cost + Variable cost
(d) Accounting cost + Direct cost
Economic costs equals-
(a) Explicit cost + Implicit cost
(b) Fixed cost + Variable cost
(c) Accounting cost + Explicit cost
(d) none of the above
_ costs are the value of foregone opportunities that do not involve any contractual obligation of cash payment.
(a) Explicit
(b) Implicit
(c) Accounting
(d) Hidden
_ includes all payments made to factors of production and opportunity cost.
(a) Accounting costs
(b) Economic costs
(c) Implicit costs
(d) Explicit costs

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An entrepreneur must recover his _ cost if he wants to earn normal and abnormal profits.
(a) accounting
(b) implicit
(c) economic
(d) all the above
Which of the following are implicit costs?
(i) A shop taken on rent by entrepreneur
(ii) Savings invested to start business
(iii) An individual is both owner and manager of business
(iv) A farmer takes a farm on rent
(a) i and ii
(b) iii and iv
(c) ii and iii
(d) i and iv
Which of the following are explicit costs?
(i) A producer borrows money to start a factory
(ii) A producer invests his savings to start a factory
(iii) Wages paid to workers
(iv) An individual is both owner & manager of business
(a) i & ii
(b) iii & iv
(c) i & iii
(d) ii & iv
The difference between Economic Cost and Accounting Cost is equal to _
(a) Implicit cost
(b) Explicit cost
(c) Marginal cost
(d) none of the above
All but one is not included in the books of account? Which one?
(a) Taxes
(b) Electricity charges
(c) Cost of raw-material
(d) Imputed salary of owner
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_ costs involve actual expenditure of funds on wages, material, rent, etc.
(a) Opportunity
(b) Outlay
(c) Economic
(d) Implicit
The cost that a firm incurs in purchasing or hiring, the services of various productive factors is referred to as-
(a) Explicit cost
(b) Fixed cost
(c) Implicit cost
(d) Variable cost
Explicit costs are also known as-
(a) Accounting costs
(b) Outlay costs
(c) Out-of-Pocket costs
(d) All the above
For an economist, the cost means-
(a) Accounting Costs
(b) Economic Costs
(c) Outlay Costs
(d) Sink Cost
Implicit costs are also known an-
(a) Opportunity costs
(b) Imputed costs
(c) Notional costs
(d) All the above

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Opportunity cost refers to-
(a) money expenses incurred on purchasing or hiring factor, services
(b) the next best alternative
(c) involving cash payment
(d) all the above
Opportunity cost refers to-
(a) Cost of opportunity foregone
(b) Comparison between the policy that was chosen and the policy that was rejected
(c) Costs relating to sacrificed alternatives
(d) all the above
The cost of one thing in terms of the alternative given up is known as-
(a) Production cost
(b) Accounting cost
(c) Opportunity cost
(d) Real cost
Opportunity costs find its application in situations _
(a) for short run and long run decision making
(b) capital expenditure budgeting
(c) when the supply of input factors is strictly limited
(d) all the above
Opportunity costs are a result of _
(a) Abundance of resources
(b) Scarcity of resources
(c) Technology obsolescence
(d) Cost controls
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All but one are true about opportunity cost. Which one is not true?
(a) Opportunity costs are recorded in the books of account.
(b) Opportunity costs are applicable to those factors which have alternative uses.
(c) Opportunity cost is also known as ‘alternative cost’
(d) Opportunity cost is also known as ‘displacement cost’
If no sacrifice is involved, then the opportunity cost is
(a) very high
(b) very low
(c) zero
(d) both ‘b’ & ‘c’
The concept of opportunity cost helps us to know that-
(a) resources are scarce,
(b) resources have alternative uses,
(c) how scarce resources get allocated in different production activities
(d) all the above
If you give up a full-time job to go to college, the major cost is –
(a) tuition fees
(b) room and board
(c) the income you could have earned from job
(d) social expenses
If a firm’s machinery, has no possible alternative use, its opportunity cost is –
(a) high
(b) low
(c) zero
(d) none of the above

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If you own a cottage in Shimla which you could rent for August and September to some family for a net gain of ₹ 20,000/- after all expenses and taxes, the opportunity cost of living in it yourself for summer is _
(a) ₹ 10,000
(b) ₹ 20,000
(c) ₹ 30,000
(d) ₹ 40,000
Cost of getting something involves losing something else means –
(i) accounting costs
(ii) opportunity costs
(iii) explicit costs
(iv) implicit costs
(a) Only i
(b) ii and iii
(c) i and iii
(d) ii and iv
The costs which can be identified easily and indisputably with a unit of operation, a product, a department, a plant or a process are called-
(i) direct cost
(ii) indirect cost
(iii) traceable cost
(iv) non-traceable cost
(a) Only i
(b) ii and iii
(c) i and iii
(d) ii and iv
_ costs are not identified readily and indisputably to specific product, process, department, plant, operations, etc.
(a) Indirect costs
(b) Traceable costs
(c) Non-traceable costs
(d) Both ‘a’ & ‘c’
Accounting process recognizes-
(a) direct costs
(b) indirect cost
(c) only direct costs
(d) both direct and indirect costs
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The function which gives least cost combinations of inputs corresponding to different levels of output is called-
(a) Production function
(b) Demand function
(c) Cost function
(d) Supply function
Cost functions are derived from _
(a) Demand function
(b) Supply function
(c) Isoquant function
(d) Production function
_ refers to the functional relationship between cost of a product and the various determinants of cost.
(a) Cost function
(b) Isoquant function
(c) Production function
(d) Supply function
In a cost function, the total cost or cost per unit is a/an _
(a) Dependent Variable
(b) Independent Variable
(c) Either ‘a’ or ‘b’
(d) Neither ‘a’ nor ‘b’
In a cost function, the prices of factors of production is a/an _
(a) Dependent Variable
(b) Independent Variable
(c) Either ‘a’ or ‘b’
(d) Neither ‘a’ nor ‘b’

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Which one of the following is the dependent variable in a cost function?
(a) Level of capacity utilization
(b) Lot size of output
(c) Scale of operations
(d) Total Cost
Which one of the following is an independent variable in a cost function?
(a) Cost per unit
(b) Total cost
(c) Managerial efficiency
(d) None of the above
All but one are independent variables. Which one is not independent variable?
(a) Quantity of output
(b) Prices of factors of production
(c) Per unit cost of production
(d) Time Period under study
Which one of the following is not a determinant of the firm’s cost function?
(a) Price of firm’s output
(b) Production function
(c) Price of labour
(d) Rent paid for use of building
The functional relationship between output and the long-run cost of production is called _
(a) Cost function
(b) Production function
(c) Long-run Cost function
(d) Long-run Production function
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Law of Returns to Scale forms the basis of _ cost function
(a) Long-run
(b) Short-run
(c) Fixed
(d) all the above
A cost function determines the behaviour of cost with change in _
(a) Output
(b) Input
(c) Technology
(d) Wages
Increase in the size of a firm and its production capacity determines _
(a) Short-run production function
(b) Long-run production function
(c) Fixed production function
(d) None of the above
When a firm operates with a given scale of production it affects the _
(a) Long-run production function
(b) Fixed production function
(c) Short run production function
(d) All the above
Find the odd one-
(a) Output
(b) Price of raw-materials
(c) Time period
(d) Total cost

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The costs which do not change with the level of output are called :
(i) Supplementary Costs
(ii) Money Costs
(iii) Overhead Costs
(iv) Prime Cost
(a) i & ii
(b) ii & iii
(c) i & iii
(d) i, ii, iii & iv
The costs which change with the level of output are called _
(a) Prime cost
(b) Direct cost
(c) Variable cost
(d) All the above
The costs which remain constant at all the levels of output are called _
(a) Supplementary Costs
(b) Fixed Costs
(c) Overhead Costs
(d) All the above
Fixed costs includes-
(a) Historical costs
(b) Explicit costs
(c) Implicit costs
(d) Both ‘b’ and ‘c’
At zero level of output _ cost can never be zero.
(a) Variable
(b) Fixed
(c) Direct
(d) Real
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At zero level of output cost _ is zero.
(a) Fixed
(b) Overhead
(c) Variable
(d) Real
_ costs are incurred even before production starts
(a) Fixed
(b) Variable
(c) Real
(d) Marginal
_ costs are incurred after the production actually starts.
(a) Fixed
(b) Variable
(c) Marginal
(d) Real
At zero level of output Fixed Cost must be greater than Variable Cost.
(a) False
(b) Partially True
(c) True
(d) None of the above
Fixed Costs are a function of _
(a) Time
(b) Output
(c) Both time and output
(d) All the above

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Variable Costs are a function of _
(a) Time
(b) Output
(c) Both time and output
(d) All the above
_ costs are directly or positively related to output.
(a) Fixed
(b) Stair-step
(c) Semi-Variable
(d) Variable
When production level is zero, then fixed cost is-
(a) zero
(b) negative
(c) positive
(d) equal to variable cost
Which of the following indicates fixed costs?
(a) Electricity Bill
(b) Wages to daily labourers
(c) Expenses on transportation
(d) Interest on fixed capital
Variable costs include costs of-
(a) Hiring the building for the factory
(b) Purchase of heavy machines
(c) Pay wages to factory manager
(d) Paying for power and fuel
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Which one of the following is correct?
(a) TC = TFC × TVC
(b) TC = TFC ÷ TVC
(c) TC = TFC + TVC
(d) TC = TFC – TVC
Which cost increases continuously with the increase in production?
(a) Average cost
(b) Marginal cost
(c) Fixed cost
(d) Variable cost
When output is increased variable cost also rises initially at _ rate and later at _ rate.
(a) diminishing; constant
(b) increasing; constant
(c) diminishing; increasing
(d) constant; increasing
The costs which are neither perfectly variable, nor absolutely fixed when output level are changed are _
(a) Variable costs
(b) Semi Variable costs
(c) Stair Step costs
(d) Prime costs
_ costs are independent of the level of output.
(a) Fixed
(b) Variable
(c) Marginal
(d) Semi Variable costs

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71.TVC can be calculated as-

TC reflect the behaviour of-
(a) TFC
(b) TVC
(c) AFC
(d) None of the above
At zero level of output Total Cost of Production is equal to-
(a) Total Fixed Cost
(b) TotalVariableCost
(c) Marginal Cost
(d) Explicit Cost
Total Fixed Cost Curve is indicated by a-
(a) Positively sloped Curve
(b) Vertical Straight Line Curve
(c) Horizontal Straight Line Curve
(d) Negatively sloped Curve
Total cost curve shoots from a point on Y-axis means-
(a) we are referring to the short period
(b) we are referring to the long period
(c) we are referring to the market period
(d) we are referring to the secular period
In the short period, TC = ∑ MC Is it correct ?
(a) Yes
(b) No, as TC = TFC + ∑ MC
(c) Partially correct
(d) none of the above
Total Variable Cost initially rises at a diminishing rate due to-
(a) increasing returns to factor
(b) increasing returns to scale
(c) diminishing returns to factor
(d) diminishing returns to scale
Total Variable Cost curve shoots upwards from-
(a) a certain point on quantity axis
(b) a certain point on cost axis
(c) origin
(d) Any of the above
TFC curve will be a straight line –
(a) Parallel to X-axis
(b) Parallel to Y-axis
(c) Sloping upward from left to right
(d) Sloping downward from left to right
Total Variable Cost curve originate from the point of origin means-
(a) Variable cost is zero at zero output
(b) Variable cost has to be incurred at zero output
(c) Variable cost is diminishing
(d) All the above

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The total cost curve and total variable cost curve are parallel because-
(a) Vertical distance between the two is total fixed cost which is constant
(b) behaviour of total cost depends upon total variable cost
(c) change in total cost is only due to change in variable cost
(d) all the above
The vertical distance between TVC and TC is equal to –
(a) Marginal Cost
(b) Total Fixed Cost
(c) Average Variable Cost
(d) None of the above
The fixed cost per unit of output is called-
(a) Average Fixed Cost (b) Total Fixed Cost
(c) Marginal Cost (d) None of the above
In the short run, when output of a firm increases, its average fixed cost-
(a) rises continuously
(b) falls continuously
(c) remain constant
(d) first rises and then falls
Average Fixed Cost curve _
(a) slope upwards
(b) slope downwards
(c) is TJ’ shaped
(d) is ‘S’ shaped
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Total Variable Curve is _ shaped
(a) ‘U’ shaped
(b) Inverted’U’shaped
(c) Inverted ‘S’ shaped
(d) ‘C’ shaped
Average Fixed Cost curve is indicated by-
(a) a rectangular hyperbola
(b) a straight line parallel to X-axis
(c) a straight line parallel to Y-axis
(d) a ‘U’ shaped curve
Average Fixed Cost curve will never touch-
(a) X-axis
(b) Y-axis
(c) both ‘a’ and ‘b’
(d) none of the above
Average Variable Cost equals-

Which of the following falls continuously?
(a) Marginal Cost
(b) Average Fixed Cost
(c) Average Variable Cost
(d) Total Fixed Cost

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Average Variable Cost falls as output is expanded-
(a) upto normal capacity output
(b) beyond normal capacity output
(c) all the levels of output
(d) Nothing can be said
Beyond normal capacity output, as output in-creases AVC will-
(a) remain constant
(b) decrease
(c) increase
(d) nothing can be said
Average variable cost is inversely related to _
(a) MP of variable factor
(b) AP of variable factor
(c) TP
(d) nothing can be said
AVC falls as output increases upto normal ca-pacity due to-
(a) constant returns to scale
(b) diminishing returns to factor
(c) increasing returns to factor
(d) negative returns to factor
AVC curve is-
(a) ‘S’ shaped
(b) ‘U’ shaped
(c) Inverted ‘S’ shaped
(d) Inverted’U’shaped
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_ and _ curves start from the same point on Y-axis which is above the origin.
(a) TFC and TVC
(b) TVC and TC
(c) TFC and TC
(d) None of the above
Two curves which are inverted ‘S’ shaped are –
(a) TFC and TVC
(b) TVC and TC
(c) TC and AVC
(d) AFC and AVC
Average Cost curve is-
(a) Horizontal Line parallel to x-axis
(b) Inverted ‘S’ shaped
(c) Inverted ‘U’ shaped
(d) ‘U’ shaped
When output is increased Average Cost at all the levels of output includes both AVC and AFC means that-
(a) AC curve will always lie above the AVC curve
(b) AC curve will always lie below the AVC curve
(c) AC and AVC are parallel to each other with same vertical distance throughout
(d) None of the above
The vertical gap between AC and AVC curves as the output increases.
(a) increases
(b) decreases
(c) remain constant
(d) None of the above

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Since AFC can never be zero, _ and _ curves never intersect each other
(a) AC and MC
(b) AC and AFC
(c) AC and AVC
(d) None of the above
The two inverted ‘S’ shaped short run cost curves are parallel to each other and maintain a constant distance of ₹ 100. Which cost is indicated by ₹100?
(a) Total Variable Cost
(b) Total Cost
(c) total Fixed Cost
(d) Average Fixed Cost
Find the odd one out-
(a) Salary to manager of the company
(b) Payment of insurance premium for insurance of factory
(c) Interest on loan taken from Union Bank
(d) Payment of excise duty
Average Fixed Cost falls as the output rises because-
(a) AFC and output are inversely related
(b) AFC and output are positively related
(c) AFC and output are not related
(d) All the above
Production at the loss of _ may continue in short run.
(a) Variable Cost
(b) Fixed Cost
(c) Marginal Cost
(d) Direct Cost
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Production at the loss of _ cannot be continued in short run.
(a) Direct Cost
(b) Fixed Cost
(c) Marginal Cost
(d) Variable Cost
Which of the following statements is correct of the relationship among the short run costs?
(a) ATC = AFC – AVC
(b) AVC = AFC + ATC
(c) AFC = ATC + AVC
(d) AFC = ATC -AVC
Average Total Cost equals-

Average Total Cost means-
(a) The general average cost
(b) The average cost of producing one unit
(c) The cost of producing the last unit
(d) None of the above
Average Cost curve contains in it-
(a) Normal Profits
(b) No Normal Profits
(c) Both ‘a’ and ‘b’
(d) None of the above

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Average Cost curve is a _
(a) ‘S’ shaped curve
(b) T shaped curve
(c) ‘U’ shaped curve
(d) Straight Line
When expressed as an average, it shows a continuous fall with increase in output-
(a) the average cost of a firm
(b) the fixed cost of a firm
(c) marginal cost
(d) variable cost
An addition to the total cost caused by producing one more unit of output is called _
(a) average cost
(b) marginal cost
(c) fixed cost
(d) variable cost
Marginal Cost varies inversely with _ in short run
(a) average product of variable factor
(b) total product
(c) marginal product of variable factor
(d) both ‘a’ and ‘b’
Marginal Curve is _
(a) ‘U’ shaped
(b) ‘L’ shaped
(c) ‘S’ shaped
(d) downward sloping continuously
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At the minimum average cost, a firm can produce the _
(a) maximum output
(b) optimum profit
(c) optimum output
(d) marginal output
Any change in Marginal Cost will lead to a change in firm’s _
(a) total fixed cost
(b) total variable cost
(c) average fixed cost
(d) both ‘a’ and ‘c’
With increase in output, the average fixed cost will fall in _
(a) very long period
(b) long period
(c) market period
(d) short period
Marginal Cost is the slope of _ curve.
(a) total variable cost
(b) total fixed cost
(c) average cost
(d) all the above
When total variable cost rises at a diminishing rate, marginal cost _
(a) rises
(b) remain constant
(c) falls
(d) none of the above

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When TVC rises at an increasing rate, MC _
(a) rises
(b) falls
(c) remain constant
(d) none of the above
Graphically, the area under the Marginal Cost curve is _
(a) TFC
(b) TVC
(c) TC
(d) AC
Marginal Cost Curve cuts the Average Cost Curve at its _
(a) falling part
(b) rising part
(c) minimum point
(d) both ‘a’ and ‘b’
Marginal Cost is independent of
(a) fixed cost
(b) variable cost
(c) opportunity cost
(d) output
All but one are ‘U’ shaped
(a) The AVC curve
(b) The AC curve
(c) The MC curve
(d) The AFC curve
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Find the Odd One out of the following
(a) TCn – TCn-1
(b) TFCn – TFCn-1
(c) TVCn-TVCn -1
(d) TCn-(TVCn-1+TFCn-1) .
The point at which marginal cost equate average cost shows-
(a) The maximum Profit
(b) The equilibrium point of the consumer
(c) The plant capacity
(d) The minimum price of the product
Which of the following is incorrectly matched?
(a) MC – ‘U’ shaped
(b) AFC – Rectangular Hyperbola
(c) TC – ‘J’ shaped
(d) AVC – ‘U’ shaped
If a table shows number of units produced and average cost of each unit, one can calculate-
(a) AVC
(b) MC
(c) TC
(d) All the above
Consider the following statements and point the correct one-
(a) If MC curve is below the AC curve, then the AC curve must be rising
(b) When MC curve is above the AC curve, then the AC curve must be falling
(c) MC cost curve cuts the AC curve at the minimum point of AC curve
(d) AC pulls up or down the MC Sp

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When AC is at its minimum, then-
(a) AC >MC
(b) AC < MC
(c) AC = MC
(d) All the above
Per unit cost of a commodity is called-
(a) fixed cost
(b) variable cost
(c) average cost
(d) marginal cost
When MC curve cuts AC curve-
(a) AC = MC
(b) AC > MC
(c) AC < MC
(d) both AC and MC are falling
What happens to Average Cost when MC > AC?
(a) AC will fall
(b) AC will rise
(c) AC will remain constant
(d) None of the above
Marginal cost includes-
(a) fixed cost and variable cost
(b) only fixed cost
(c) only variable cost
(d) None of the above
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If the marginal cost of production is less than the average cost then-
(a) MC curve lies under the AC curve
(b) AC would be falling
(c) MC cost pulls down AC
(d) All the above
MC is greater than AC when production is in a state of _
(a) increasing returns
(b) diminishing returns
(c) constant returns
(d) None of the above
AC is greater than MC, so long as –
(a) AC is falling
(b) AC is rising
(c) AC is constant
(d) All the above
MC = AC when –
(a) AC is falling
(b) AC is rising
(c) AC tends to stabilize
(d) None of the above
The distance between AC and AVC curves tends to _ at higher level of output
(a) increase
(b) remain constant
(c) reduce
(d) None of the above

ATC and AVC curves tend to intersect at some level of output
(a) Statement is Incorrect
(b) Statement of Correct
(c) Statement is Partially Correct
(d) None of the above
The difference between ATC and AVC:
(a) is constant
(b) is total fixed cost
(c) gets narrow as output falls
(d) is the average fixed cost
Can AC fall, when MC is rising?
(a) No
(b) Yes
(c) Can’t say
(d) None of the above
When MC < AVC, _ with increase in the output
(a) AVC rises
(b) AV C falls
(c) AVC remain constant
(d) AVC curve cut MC curve
When MC becomes equal to AC and AVC, they _
(a) begin to rise
(b) begin to fall
(c) become constant
(d) Any of the above
There will be productive efficiency when-
(a) MC = AC
(b) firm is producing at the minimum point of Average Cost Curve
(c) MC curve cuts the AC curve
(d) All the above
Marginal Cost is _
(a) Always less than the Average Cost
(b) Always more than the Average Cost
(c) Equal to the Average Cost at its minimum point
(d) Never equal to Average Cost

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