Cost in economics refers to
A Only money spent on inputs
B Opportunity cost of resources used
C Accounting expenditure only
D Market price of output
Economic cost includes explicit costs plus implicit (opportunity) costs of owned resources used in production.
Fixed cost is a cost that
A Changes with output
B Varies proportionately with output
C Remains constant in the short run
D Exists only in the long run
Fixed costs do not change with output level in the short run, such as rent or salaries.
Which of the following is a fixed cost?
A Wages of casual labour
B Raw material cost
C Electricity for machines
D Factory rent
Factory rent is paid regardless of output, making it a fixed cost.
Variable cost is the cost that
A Is independent of output
B Changes with output
C Exists only in the long run
D Is sunk cost
Variable costs vary directly with the level of output, such as raw materials.
Total cost (TC) equals
A TFC + TVC
B AFC + AVC
C MC + AC
D TR – TC
Total cost is the sum of total fixed cost and total variable cost.
Which cost becomes zero when output is zero?
A Fixed cost
B Total cost
C Variable cost
D Average cost
Variable costs are incurred only when production takes place.
Average cost (AC) is defined as
A TC × Q
B TC ÷ Q
C TFC ÷ Q
D TVC × Q
Average cost is total cost per unit of output.
Average fixed cost (AFC)
A Increases with output
B Remains constant
C Decreases as output increases
D Is U-shaped
AFC falls continuously as fixed cost is spread over more units.
Average variable cost (AVC) is
A TFC ÷ Q
B TVC ÷ Q
C TC ÷ Q
D MC ÷ Q
AVC measures variable cost per unit of output.
Marginal cost (MC) is
A Change in total cost ÷ change in output
B TC ÷ Q
C Difference between AC and AVC
D Difference between TR and TC
Marginal cost measures the additional cost of producing one more unit.
When output increases by one unit and TC rises by ₹50, MC is
A ₹50
B ₹25
C ₹100
D ₹0
MC equals change in TC divided by change in output, here 50/1.
Fixed cost in the long run is
A Always positive
B Zero
C Increasing
D Decreasing
In the long run, all costs become variable; there are no fixed costs.
Which curve never touches the X-axis?
A TVC
B TC
C TFC
D MC
TFC remains positive even at zero output and never touches the axis.
Total fixed cost curve is
A Vertical line
B Horizontal straight line
C U-shaped
D Downward sloping
TFC remains constant at all output levels, hence horizontal.
Total variable cost curve initially
A Increases at increasing rate
B Increases at decreasing rate
C Is horizontal
D Falls continuously
Initially, due to better use of fixed factors, TVC rises at a decreasing rate.
The U-shape of AVC curve is due to
A Law of demand
B Law of diminishing marginal returns
C Law of supply
D Returns to scale
AVC first falls due to increasing returns and then rises due to diminishing returns.
Which cost curve is U-shaped?
A AFC
B AVC
C AC
D Both B and C
Both AVC and AC are U-shaped due to operating laws of returns.
MC curve intersects AC curve at
A Maximum point of AC
B Minimum point of AC
C Maximum point of MC
D Zero output
MC cuts AC at AC’s minimum point.
MC curve intersects AVC curve at
A Maximum AVC
B Minimum AVC
C Zero AVC
D Maximum MC
MC equals AVC at AVC’s minimum.
Which cost decreases continuously with increase in output?
A AC
B AVC
C AFC
D MC
AFC falls as output rises because fixed cost is spread over more units.
The distance between TC and TVC curves equals
A AFC
B AVC
C MC
D TFC
TC = TFC + TVC, so the vertical gap equals TFC.
Short-run cost curves are derived from
A Demand function
B Production function
C Utility function
D Supply function
Costs depend on output produced, which is determined by production function.
In the short run, which factor is fixed?
A Labour
B Raw material
C Capital
D Energy
Capital is generally fixed in the short run.
Which cost is also called per-unit cost?
A Total cost
B Fixed cost
C Average cost
D Marginal cost
Average cost represents cost per unit of output.
Marginal cost depends on
A Fixed cost only
B Variable cost only
C Total cost only
D Fixed and variable cost
Since fixed cost does not change with output, MC depends on variable cost.
When MC is less than AC, AC
A Rises
B Falls
C Is constant
D Is zero
If MC < AC, it pulls AC downward.
When MC is greater than AC, AC
A Falls
B Is constant
C Rises
D Is minimum
MC above AC pushes AC upward.
Which cost curve lies above AVC curve?
A MC
B AFC
C AC
D TVC
AC = AVC + AFC, so AC always lies above AVC.
At zero output, total cost equals
A Zero
B TFC
C TVC
D AFC
At zero output, only fixed costs are incurred.
Which cost increases at an increasing rate after a point?
A AFC
B TVC
C TFC
D AC
Due to diminishing returns, TVC rises at an increasing rate after some output.
The main cause of rising MC in short run is
A Fixed cost
B Law of diminishing returns
C Economies of scale
D Technological progress
With fixed factors, additional units add more to cost.
Which curve is derived from AVC?
A AC
B MC
C AFC
D TFC
AC is obtained by adding AFC to AVC.
Which cost curve is never U-shaped?
A AC
B AVC
C MC
D AFC
AFC continuously falls and is not U-shaped.
When production increases, AFC
A Increases
B Remains constant
C Decreases
D Becomes zero
AFC falls as fixed cost is spread over more units.
Which cost is relevant for shutdown decision in short run?
A AFC
B AC
C AVC
D TFC
Firm shuts down if price falls below AVC.
Opportunity cost refers to
A Accounting cost
B Explicit cost
C Foregone alternative
D Historical cost
Opportunity cost is the value of the next best alternative forgone.
Sunk costs are
A Recoverable
B Avoidable
C Past costs
D Future costs
Sunk costs are already incurred and cannot be recovered.
Which cost is ignored in decision-making?
A Opportunity cost
B Marginal cost
C Sunk cost
D Variable cost
Sunk costs do not affect current decisions.
Explicit costs are
A Opportunity costs
B Non-monetary costs
C Accounting payments
D Implicit costs
Explicit costs involve direct monetary payments.
Implicit costs represent
A Cash payments
B Opportunity cost of own resources
C Taxes paid
D Fixed expenses
Implicit costs include foregone income from self-owned resources.
Short-run average cost equals
A AFC + AVC
B MC + AVC
C AFC + MC
D TC ÷ AVC
AC is sum of average fixed and average variable costs.
When output doubles, which cost definitely doubles?
A AFC
B AVC
C TFC
D Sunk cost
Variable cost changes with output, unlike fixed cost.
Which cost is independent of output level?
A Variable cost
B Marginal cost
C Fixed cost
D Average cost
Fixed cost remains unchanged with output in short run.
The shape of AC curve depends on
A Demand conditions
B Revenue conditions
C Cost behaviour
D Market structure
AC reflects how costs change with output.
Cost curves in short run are influenced by
A Fixed factors
B Variable factors
C Law of returns
D All of the above
Short-run costs depend on fixed inputs, variable inputs, and returns.
Which cost concept is most important for output decision?
A Average cost
B Total cost
C Marginal cost
D Fixed cost
Output decisions are made at the margin using MC.
When MC is zero, TC is
A Maximum
B Minimum
C Constant
D Falling
Zero MC implies no change in TC at that output.
Which cost reflects efficiency of production?
A Total cost
B Fixed cost
C Average cost
D Sunk cost
Lower AC indicates higher efficiency.
Cost analysis is part of
A Consumer behaviour
B Production theory
C Welfare economics
D Monetary theory
Cost concepts explain producer decisions and production efficiency.
The main objective of cost analysis is to
A Minimize revenue
B Maximize output
C Control production cost
D Increase demand
Cost analysis helps firms minimize cost and maximize profit.