Chapter MCQ Test 2 — Cost
10 Questions • 12 min • Chapter MCQ
12:00
Question 1 of 10
A bakery pays ₹2,000 rent whether it bakes 0 or 100 loaves. This ₹2,000 is a:
Fixed cost
Variable cost
Marginal cost
Opportunity cost
Explanation: Rent does not change with output, so it is a fixed cost.
Question 2 of 10
If TFC = ₹100 and at 10 units TVC = ₹150, then AC at 10 units is:
₹25
₹15
₹10
₹250
Explanation: TC = 100 + 150 = 250; AC = 250 ÷ 10 = ₹25.
Question 3 of 10
AFC keeps falling but never reaches zero because total fixed cost:
Stays positive while being spread over more units
Rises with output
Becomes negative
Equals MC
Explanation: A constant positive TFC divided by an ever-larger Q approaches, but never reaches, zero.
Question 4 of 10
When MC is below AC, the AC curve is:
Falling
Rising
Constant
Vertical
Explanation: While MC lies below AC it pulls AC down, so AC falls — until MC = AC at AC's minimum.
Question 5 of 10
The gap between the AC and AVC curves narrows as output rises because:
AFC (the gap) keeps falling
MC rises
TVC falls
TFC rises
Explanation: AC − AVC = AFC, and AFC declines with output, so the two curves draw closer.
Question 6 of 10
Why are the AVC and AC curves U-shaped?
First increasing then diminishing returns make per-unit costs fall then rise
Fixed cost is zero
Prices rise then fall
Output is constant
Explanation: The law of variable proportions makes costs per unit fall in the efficient range and rise as returns diminish.
Question 7 of 10
A firm shut for the day still pays its watchman and rent. These payments confirm that fixed costs:
Must be borne even at zero output
Vanish at zero output
Equal marginal cost
Are always the largest cost
Explanation: Fixed costs continue regardless of output, even when nothing is produced.
Question 8 of 10
Using the table, the AVC is lowest (₹5) and then begins to rise around output:
2 to 3
5
1
It never rises
Explanation: AVC = 5 at Q = 2 and 3, then rises to 6 and 8 — its minimum is around 2–3 units.
Question 9 of 10
Marginal cost is closely linked to total variable cost because MC equals the change in:
TVC (the only part of TC that changes with output)
TFC
AFC
Output price
Explanation: Since TFC is constant, any change in TC comes from TVC, so MC = ΔTC = ΔTVC.
Question 10 of 10
At AC's minimum point, marginal cost is:
Equal to AC
Above AC
Below AC
Zero
Explanation: The MC curve passes through the lowest point of AC, so there MC = AC.