Cost and Revenue Analysis Quiz - ICSE Class 12 Economics
Free practice quiz: Cost and Revenue Analysis (ICSE Class 12 Economics). 53 multiple-choice questions with answers and explanations. Play online, no sign-up needed.
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Which of the following cost curves is not U-shaped?
- Average Total Cost (ATC)
- Average Variable Cost (AVC)
- Marginal Cost (MC)
- Total Cost (TC)
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Answer: D. Total Cost (TC)
Total Cost (TC) is the sum of Total Fixed Cost (TFC) and Total Variable Cost (TVC). As output increases, TVC increases, leading TC to generally slope upwards. While TFC is constant and TVC initially rises at a decreasing rate and then at an increasing rate, their sum, TC, typically exhibits a positive and increasing slope, unlike the U-shaped ATC, AVC, and MC curves which are influenced by diminishing returns.
Which of the following is an example of a fixed cost in the short run?
- Wages paid to production workers
- Cost of raw materials
- Rent on the factory building
- Electricity bill for operating machinery
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Answer: C. Rent on the factory building
Fixed costs are costs that do not vary with the level of output in the short run. Rent on a factory building is typically a contractual obligation and must be paid regardless of whether the factory is producing anything. Wages, raw materials, and electricity are generally variable costs, as they increase with the level of production.
If a firm produces 20 units and its Total Cost is $200, and its Total Fixed Cost is $100, what is its Average Variable Cost?
- $5
- $10
- $15
- $20
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Answer: A. $5
First, calculate Total Variable Cost (TVC): TVC = Total Cost (TC) - Total Fixed Cost (TFC) = $200 - $100 = $100. Then, calculate Average Variable Cost (AVC): AVC = TVC / Quantity (Q) = $100 / 20 units = $5 per unit.
A firm producing in monopolistic competition will face a demand curve that is:
- Perfectly elastic
- Perfectly inelastic
- Downward sloping and relatively elastic
- Downward sloping and relatively inelastic
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Answer: C. Downward sloping and relatively elastic
Firms in monopolistic competition offer differentiated products, giving them some market power and a downward-sloping demand curve. However, due to the presence of many close substitutes, the demand is generally considered to be relatively elastic, meaning consumers are responsive to price changes.
Which of the following best describes the relationship between Average Revenue (AR) and the demand curve for a firm?
- AR is always equal to the demand curve.
- AR is the demand curve for all firms.
- AR is represented by the demand curve for a firm in perfect competition.
- AR is always above the demand curve.
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Answer: C. AR is represented by the demand curve for a firm in perfect competition.
In perfect competition, a firm is a price taker, meaning it can sell any quantity at the prevailing market price. Therefore, for a perfectly competitive firm, the demand curve it faces is horizontal, and Average Revenue (AR = Price) is equal to Marginal Revenue (MR) and the price.