Economics MCQS by Akhtar Saba & Ayesa Shams

CSS/PMS ECONOMICS MCQS
BY
AKHTAR SABA (M. Sc Economics USTB) & AYESHA SHAMS (M. Phil SU, Lahore)
COST1
Explicit Cost is also known as out-of-pocket cost while implicit costs are known as
imputed cost
“Cost is the value of all the inputs to the production process” (Prof. Nancy Wall)
1. The classical cost function is:
a. C= f(x,y)
b. C=f(Q)2
c. U=f(x)
d. Q=C(f)
2. The next best alternative forgone is known as:
a. Displacement cost
a. Opportunity cost3
b. Incremental cost
c. Both (a) and (c)
3. Fixed cost occurs only in the:
a. short run4
b. long run
c. both of them
d. none of them
4. Fixed cost5 is to be incurred even if the output of the firm is:
a. Positive
b. Negative
c. Zero
d. None of the above
5. Short run average cost curves are also called:
a. saucer curve
b. cup curves
c. plant curves6
d. none of these
6. Average Variable7 cost is also called average total variable cost or:
1
According to David N. Hyman “Cost measures the money value of inputs used over any given period to produced
an item.”
2
Cost function is a function that depicts the general relationship between the cost of factor input and output in a
firm. There is a +ve relationship between the cost and output.
3
The opportunity cost is also known as alternative cost.
4
According to ‘Time Period’ Cost is of two types:
1) Short Run Cost 2) Long Run Cost

5
Total Fixed Cost is the cost of fixed factors which are used to produce goods in short time period. The fixed costs
do not change with the change in output. According to Benham, “The fixed costs are those costs that do not vary
with the size of its output.
6 The LRAC curve is sometimes called and envelope curve. Long run cost curve is a planning curve.
BY
a. unit variable cost
b. unit average cost
c. unit incremental cost
d. unit fixed cost
7. Fixed cost is also called supplementary cost, overhead cost or:
a. direct cost
b. indirect cost
c. unit cost
d. incremental cost
8. Average fixed cost is also called average total fixed cost or:
a. unit fixed cost
b. unit variable cost
c. unit direct cost
d. unit average cost
9. Average cost is also average total cost or:
a. unit cost
b. direct cost
c. indirect cost
d. variable cost
10. Variable cost is also called:
a. prime cost
b. direct cost
c. both of them
d. none of them
11. Bhopas Gas Tragedy is one of the major examples of:
a. Social cost
b. Marginal cost
c. Economic cost
d. Beneficial cost
12. Marginal cost (MC) is slope of:
a. TVC curve
b. TVC curve but not TC curve
c. TC curve but not TVC
d. TVC curve or TC curve
13. Marginal Cost (MC) curve is:
a. U-shaped8
b. L-shaped
c. U-inverse shaped
d. S-inverse shaped
7
VARIABLE: The word Variable is the combination of two words, “vary” and “able”. Vary means Change and
Able means ability. The prefix “ex” mean “out, from, or away” and the prefix “end” means “in, into, into” The
adjective “exogenous” means the variable is determined outside of the equation or Model. The adjective
“endogenous” means the variable is determined within the equation or Model.
8
In the short run the cost curve (AVC, ATC and MC) are U-shaped reflecting the law of variable proportion.
BY
14. Average Variable Cost (AVC9) curve is:
a. S-shaped
b. V-shaped
c. U-shaped
d. L-shaped
15. Average Cost (AC) curve is:
a. S-shaped
b. S-inverse shaped
c. U-shape
d. U-Inverse shaped
16. Total Cost (TC) curve is:
a. S-shaped
b. U-shaped
c. Inverse S-shaped
d. Inverse U-shaped
17. The ‘Real cost10’ concept is a:
a. Subjective
b. psychological
c. Pain and Sacrifice
d. All of the above
18. When Marginal Product of Labor (MPL) is falling (Diminishing Marginal Returns):
a. MC is rising
b. MC is falling
c. Both of them
d. None of them
19. The Average Product of Labor is falling11 (APL), The AVC is:
a. Falling
b. Rising
c. Both of them
d. None of them
20. The MC curve cuts the AVC and ATC curves:
a. At the falling parts of each
b. At their respective minimum
c. At different points
d. At the rising parts of each
21. The lowest points of the ATC curve is:
a. The same as the lowest point of AVC curve
b. The left of the lowest point of the AVC curve
9 The AVC, the ATC and the MC curves are U-shaped. The MC curve intersects the AVC and AC curves at their
lowest points.
10
According to Marshall, “The production of a commodity generally requires many different kinds of labour and the
use of capital in many forms.
11 AVC and APL are inverses of each other.
a. As APL is falling, AVC is rising.

b. As APL is rising, AVC is falling
c. When APL is highest, AVC is lowest.
BY
c. The right of the lowest point of the AVC curve
d. None of these
22. Normal profit12 are considered as:
a. Explicit costs13
b. Implicit costs
c. Social costs
d. Private costs
23. When AC curve falls, MC curve falls:
a. Less than AC curve
b. More than AC curve
c. Equal to AC curve
d. All of the above
24. In long run, a firm can change:
a. Variable factors
b. Fixed factors
c. Both of them
d. None of them
25. According to modern theory of cost ‘SAC curve is:
a. S-inverted-type shape
b. U-inverted-type shape
c. Saucer-type shape
d. Oval-type shape
26. Average cost curve contains in it:
a. Normal profits
b. Super normal profits
c. No-normal profits
d. All of above
27. Average fixed cost:
a. Never becomes zero
b. Curve never touches x axis
c. Curve never touches y axis
d. All of the above
28. Average Fixed Cost:
a. Never becomes zero
b. Curve never touches X axis
c. Curve never touches Y axis
d. All of the above
29. The LAC curve is tangent to the lowest point on the SAC curves when the LAC curve is:
12 Accounting profit
a. Economic profit is also called abnormal or supernormal profit.

b. In economics when we say ‘profit’ we means ‘Economic Profit’
13
Explicit costs are those costs, which are paid to the others for their services and goods. According to Leftwitch, “Explicit
costs are those cash payments which firms make to outsiders for their services and goods.” These costs are also known as out of
packets costs or accounting costs. Explicit costs includes, following items of a firm’s expenditure, Cost of raw material,
Transportation cost, packing cost, Power changes, Taxes, Rent, Wages, Interest
BY
a. Falling
b. Rising
c. Equal
d. None of above
30. Normal profits are considered as:
a. Explicit costs
b. Implicit costs
c. Social costs
d. Private cost
31. All money costs can be regarded as:
a. Explicit costs
b. Social costs
c. Implicit costs
d. Total profit costs
32. Traditional theory of the firms total cost are split into two groups:
a. TAV + TVC
b. TFC+ LVC
c. TAV+TVC
d. TFC + TVC
33. The long-run ATC curve is:
a. S-inverted shaped
b. U-inverted shaped
c. S-shaped
d. U-shaped
34. Which type of curve start from origin:
a. TC
b. AFC
c. TVC14
d. AVC
35. Average cost is always _____ to the cost of the commodity.
a. Equal
b. Unequal
c. Equality
d. Inequality
36. Past cost is also known as:
a. Historical cost
b. Committed cost
c. Both (a) and (b)
d. None of the above
37. The concept ‘Real Cost’ was introduction by:
a. J. S. Mill in 1942
b. J. S. Mill in 1844
c. J. S. Mill in 1846
d. J. S. Mill in 1848
14
TVC is zero at zero level of output.
BY
38. The concept ‘Transaction costs’ was introduced by:
a. Douglass North
b. Tjalling Koopmans
c. Milton Friedman
d. Herbert A. Simon

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CSS/PMS ECONOMICS MCQS

1) Short Run Cost 2) Long Run Cost

a. As APL is falling, AVC is rising.

a. Economic profit is also called abnormal or supernormal profit.

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