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# CA Foundation | Theory of Cost MCQ Test | Chanakya Commerce Classes

CA Foundation Paper 4 Business Economics Chapter 3 Unit 2 Theory of Cost MCQ test page with instant scoring by Chanakya Commerce Classes.

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Business Economics MCQ
Theory of Cost MCQ Test
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CA Foundation · Paper 4 · Business Economics
Chapter 3 · Unit 2 ·
Theory of Cost
MCQ Test Page · CA Foundation level · ICAI pattern · instant scoring and answer review
30 MCQs
Foundation Level
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Question 01
Total cost is equal to:
average fixed cost + marginal cost
total fixed cost + total variable cost
total variable cost + average cost
marginal cost + average variable cost
Total cost is the sum of total fixed cost and total variable cost.
Question 02
In the short run, fixed costs are those costs which:
do not vary with output
vary directly with output
fall to zero at low output
are always avoidable
Fixed costs remain unchanged in the short run regardless of output level.
Question 03
Which of the following is a variable cost?
rent of building
insurance premium
raw material cost
interest on long-term loan
Raw material cost changes with output and is therefore a variable cost.
Question 04
When output is zero, total cost will be equal to:
total variable cost
marginal cost
average fixed cost
total fixed cost
At zero output, variable cost is zero, so total cost equals total fixed cost.
Question 05
Average fixed cost is calculated as:
TFC ÷ Q
TVC ÷ Q
TC ÷ Q
ΔTC ÷ ΔQ
Average fixed cost means fixed cost per unit of output.
Question 06
Average variable cost is equal to:
TFC ÷ Q
TVC ÷ Q
TC ÷ Q²
TC − TVC
Average variable cost is variable cost per unit of output.
Question 07
Average cost is also known as:
marginal cost
prime cost
average total cost
supplementary cost
Average cost and average total cost mean the same thing: TC ÷ Q.
Question 08
Marginal cost is the addition made to:
total fixed cost
average cost
average variable cost
total cost by producing one more unit
Marginal cost measures the increase in total cost resulting from one extra unit of output.
Question 09
Which cost remains constant in total in the short run?
total variable cost
total fixed cost
total cost
marginal cost
Total fixed cost does not change with output in short run.
Question 10
The shape of the average fixed cost curve is:
rectangular hyperbola
upward sloping straight line
horizontal line
inverted U-shape
AFC continuously falls as output increases, taking the shape of a rectangular hyperbola.
Question 11
The average variable cost curve is generally:
downward sloping throughout
horizontal
U-shaped
vertical
AVC first falls and then rises because of increasing and then diminishing returns.
Question 12
The average cost curve is U-shaped because:
fixed cost rises continuously
marginal cost is constant
output remains fixed
it is influenced by falling AFC and U-shaped AVC
AC falls initially because AFC falls and AVC falls, then rises when AVC rises strongly.
Question 13
When marginal cost is below average cost, average cost will:
rise
fall
remain constant always
become zero
Marginal cost pulls average cost downward when it is below average cost.
Question 14
When marginal cost is greater than average cost, average cost will:
rise
fall
remain unchanged in all cases
become minimum immediately
Marginal cost above average cost pulls average cost upward.
Question 15
Marginal cost curve cuts average cost curve at its:
highest point
left side
minimum point
starting point
MC intersects both AVC and AC at their minimum points.
Question 16
In the short run, the law mainly governing cost behaviour is:
law of demand
law of supply
law of returns to scale
law of variable proportions
Short-run cost behaviour is tied to the law of variable proportions.
Question 17
Long-run average cost curve is also called:
profit curve
planning curve
revenue curve
sales curve
LAC is called the planning curve because a firm plans plant size in the long run.
Question 18
In the long run:
all factors are variable
all factors are fixed
only labour is variable
costs do not exist
In the long run, the firm can vary all factors including plant size.
Question 19
Long-run average cost falls due to:
diseconomies of scale
fixed factors
economies of scale
falling demand
Economies of scale reduce per-unit cost in the long run.
Question 20
When long-run average cost rises with increase in output, it is due to:
internal economies
constant returns
specialisation only
diseconomies of scale
When scale becomes too large, management and coordination problems can raise average cost.
Question 21
If output increases from 10 units to 11 units and total cost rises from ₹500 to ₹540, marginal cost is:
₹20
₹40
₹45
₹50
MC = change in TC / change in output = (540 − 500) / 1 = ₹40.
Question 22
If total fixed cost is ₹300 and output is 10 units, average fixed cost is:
₹30
₹20
₹10
₹300
AFC = TFC / Q = 300 / 10 = ₹30.
Question 23
If total variable cost is ₹600 at 20 units of output, average variable cost is:
₹20
₹25
₹40
₹30
AVC = TVC / Q = 600 / 20 = ₹30.
Question 24
If total cost is ₹900 and output is 30 units, average cost is:
₹20
₹25
₹30
₹35
AC = TC / Q = 900 / 30 = ₹30.
Question 25
Which of the following statements is correct?
AFC rises as output rises
AFC continuously falls as output rises
AFC is always equal to AVC
AFC can become negative
Fixed cost is spread over more units as output rises, so AFC falls continuously.
Question 26
The reason marginal cost first falls and then rises is:
law of variable proportions
law of demand
law of diminishing utility
law of increasing returns to scale only
In short run, MC reflects increasing and then diminishing returns to the variable factor.
Question 27
Which curve lies below the average cost curve because average cost includes it plus AFC?
marginal cost curve
total cost curve
total variable cost curve
average variable cost curve
AC = AVC + AFC, so AVC lies below AC.
Question 28
The long-run average cost curve is generally:
a vertical line
always downward sloping
U-shaped
rectangular hyperbola
LAC is usually U-shaped because of economies and diseconomies of scale.
Question 29
If marginal cost is less than AVC, then AVC will:
rise
fall
remain fixed
become zero
Marginal pulls average. If MC is below AVC, AVC falls.
Question 30
A firm is in the long run when:
it can change plant size and all factors of production
it cannot vary output
fixed costs remain constant forever
only one factor is variable
Long run means enough time to vary all inputs and choose plant size.
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MCQ Test · Chapter 3 · Unit 2 · Theory of Cost