Producer’s equilibrium is achieved when
A Cost is minimum
B Output is maximum
C Profit is maximum
D Revenue is maximum
Producer’s equilibrium refers to the level of output at which profit difference between revenue and cost is the highest.
Producer’s equilibrium under perfect competition can be analyzed using
A Indifference curve
B Demand curve only
C Cost and revenue curves
D Utility curves
Cost and revenue curves help determine the profit-maximizing output level.
Under perfect competition, the demand curve faced by a firm is
A Downward sloping
B Upward sloping
C Perfectly elastic
D Perfectly inelastic
A competitive firm is a price taker and faces a perfectly elastic demand curve.
Producer equilibrium under TR–TC approach occurs at output where
A TR is maximum
B TC is minimum
C TR – TC is maximum
D TR = TC
Profit is the vertical difference between TR and TC, which should be maximum.
If total revenue is less than total cost, the firm is
A Earning normal profit
B Earning supernormal profit
C In loss
D At break-even
When costs exceed revenue, the firm incurs losses.
A firm is at break-even point when
A Profit is maximum
B Loss is minimum
C TR equals TC
D MC equals MR
At break-even, the firm earns neither profit nor loss.
Which curve shows minimum cost of producing each level of output?
A MC
B AVC
C AC
D AFC
Average cost shows per-unit cost at each output level.
A firm earns supernormal profit when
A Price equals AC
B Price exceeds AC
C Price is less than AC
D Price equals AVC
When AR is greater than AC, supernormal profits exist.
Normal profit is earned when
A AR > AC
B AR < AC
C AR = AC
D MR = MC
Normal profit occurs when average revenue equals average cost.
In short run, a firm may continue production even if
A AR < AVC
B AR < AC but AR > AVC
C AR < AFC
D MC > MR
As long as variable costs are covered, production continues in short run.
Shut-down point of a firm is determined by
A AC
B AVC
C AFC
D MC
Firm shuts down when price falls below AVC in short run.
In long run, a firm will shut down if
A AR < AVC
B AR < AC
C MR < MC
D TR < TC temporarily
In long run, firm must cover all costs including fixed costs.
Which curve represents supply curve of a competitive firm in short run?
A MC below AVC
B MC above AVC
C AC curve
D AVC curve
Firm supplies output where MC is above AVC.
The profit-maximizing condition MR = MC is necessary because
A Profit is maximum at MR
B Cost is minimum at MC
C Additional profit stops at that point
D Revenue is zero
Beyond MR = MC, extra output adds more cost than revenue.
Which of the following is a fixed factor in short run?
A Labour
B Raw material
C Capital
D Energy
Capital is generally fixed in short-run production.
Law of variable proportions explains behavior of output in
A Long run
B Short run
C Secular period
D Market period
It applies when one factor is fixed and others vary.
When marginal product is declining but positive, production is in
A Stage I
B Stage II
C Stage III
D Stage 0
Stage II is the rational stage where MP is positive but diminishing.
Rational producer avoids Stage I because
A MP is negative
B AP is rising
C Fixed factor is underutilized
D TP is falling
In Stage I, fixed factor is not fully utilized.
Rational producer avoids Stage III because
A AP is maximum
B MP is zero
C MP is negative
D TP is maximum
Negative MP reduces total output, making Stage III irrational.
Returns to scale differ from returns to a factor because
A Scale studies one input
B Scale studies all inputs
C Factor studies long run
D Factor studies market period
Returns to scale involve proportional change in all factors.
Increasing returns to scale are mainly due to
A Scarcity of factors
B External diseconomies
C Economies of scale
D Law of diminishing returns
Technical and managerial efficiencies raise productivity.
Decreasing returns to scale result from
A Better coordination
B Improved technology
C Management inefficiency
D Specialization
Large scale leads to control and coordination problems.
Constant returns to scale imply
A Output rises faster than inputs
B Output rises slower than inputs
C Output rises proportionately with inputs
D Output remains unchanged
Inputs and output increase in same proportion.
Returns to scale are analyzed using
A Cost curves
B Demand curves
C Isoquants
D Indifference curves
Isoquants show input-output relations in long run.
When isoquants get closer together, it indicates
A Decreasing returns
B Constant returns
C Increasing returns
D Negative returns
Less input is needed for extra output, showing increasing returns.
External economies arise due to
A Firm’s own expansion
B Growth of industry
C Poor management
D Rising costs
External economies benefit all firms due to industry growth.
Internal economies are enjoyed by
A All firms in industry
B Government
C Individual firm
D Consumers
Internal economies accrue to a single firm due to its expansion.
Elasticity of supply is zero when
A Supply is horizontal
B Supply is vertical
C Supply is upward sloping
D Supply is backward bending
Vertical supply curve shows no response to price change.
Elasticity of supply is infinite when
A Supply curve is vertical
B Supply curve is horizontal
C Supply curve slopes upward
D Supply curve slopes backward
Horizontal curve indicates infinite elasticity.
Supply becomes more elastic with
A Short time period
B Rigid technology
C Longer time period
D Perishable goods
Longer time allows adjustment of inputs.
Which supply is most elastic?
A Agricultural goods
B Perishable goods
C Manufactured goods
D Land
Manufactured goods can be produced easily by adjusting inputs.
Elasticity of supply depends on
A Nature of goods
B Time period
C Flexibility of production
D All of the above
All these factors influence responsiveness of supply.
Producer equilibrium under monopoly occurs where
A AR = AC
B MR = MC
C TR = TC
D Price = MC
Monopoly maximizes profit at MR = MC, not at price = MC.
In monopoly, price is
A Equal to MC
B Less than MC
C Greater than MC
D Equal to AVC
Monopoly charges price above marginal cost.
Producer equilibrium is stable when
A MC cuts MR from above
B MC cuts MR from below
C MR cuts MC from above
D MC never cuts MR
This ensures profit maximization condition.
If MR is falling and MC is rising, equilibrium will be
A Unstable
B Indeterminate
C Stable
D Impossible
Opposite slopes ensure stable equilibrium.
Producer surplus refers to
A Excess of price over cost
B Excess of cost over price
C Total profit
D Normal profit
Producer surplus is difference between market price and minimum acceptable price.
Producer surplus is maximum when
A Supply is elastic
B Supply is inelastic
C Supply is perfectly elastic
D Supply is unitary elastic
Inelastic supply implies higher willingness to sell at lower prices.
Producer surplus is measured as area
A Below supply curve and above price line
B Above supply curve and below price line
C Below demand curve
D Between TR and TC
It lies between price line and supply curve.
Producer surplus helps in measuring
A Consumer welfare
B Social welfare
C Producer welfare
D National income
It measures gains to producers.
Total surplus equals
A Consumer surplus
B Producer surplus
C Consumer surplus + Producer surplus
D Profit + cost
Total surplus reflects overall welfare in the market.
Producer surplus increases when
A Price falls
B Cost rises
C Price rises
D Tax increases
Higher prices increase surplus above minimum acceptable price.
Indirect taxes generally
A Increase producer surplus
B Reduce producer surplus
C Do not affect producer surplus
D Eliminate surplus
Taxes increase cost, reducing surplus.
Subsidies tend to
A Reduce supply
B Increase supply
C Reduce producer surplus
D Increase cost
Subsidies lower cost and encourage production.
Producer behaviour theory mainly explains
A Consumer choice
B Government policy
C Firm’s output decisions
D Market demand
It focuses on how firms decide output to maximize profit.
Production function assumes
A Changing technology
B Constant technology
C Changing prices
D Perfect competition
Technology is assumed constant for analysis.
The slope of supply curve is generally
A Negative
B Zero
C Positive
D Infinite
Supply curve usually slopes upward.
Supply analysis is part of
A Consumer behaviour
B Production theory
C Welfare economics
D Monetary economics
Supply is directly related to production decisions.
The main objective of a producer is to
A Maximize sales
B Minimize cost
C Maximize profit
D Maximize output
Producers aim to maximize profit, not merely output or sales.
Producer behaviour underlies
A Demand analysis
B Supply analysis
C Utility analysis
D Consumption analysis
Supply is derived from producers’ profit-maximizing behaviour.