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

CA Foundation Paper 4 Business Economics Chapter 3 Unit 1 Theory of Production MCQ test page with instant scoring by Chanakya Commerce Classes.

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Business Economics MCQ
Theory of Production MCQ Test
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CA Foundation · Paper 4 · Business Economics
Chapter 3 · Unit 1 ·
Theory of Production
MCQ Test Page · CA Foundation level · instant scoring and answer review
30 MCQs
Foundation Level
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Question 01
Factors of production refer to:
finished goods only
inputs used in the production process
only labour and capital
goods sold to final consumers
Factors of production are the resources or inputs used to produce goods and services.
Question 02
Which of the following are the four main factors of production?
land, tax, money and labour
land, machines, labour and profit
capital, demand, labour and money
land, labour, capital and entrepreneurial ability
ICAI lists land, labour, capital and entrepreneurial ability as the main factors of production.
Question 03
In economics, land means:
all free gifts of nature
soil only
agricultural land only
real estate only
Economics uses land in a broad sense to include natural resources like water, air, fertility and sunlight.
Question 04
Which characteristic correctly relates to land?
it is produced by man
its total supply can be increased quickly
its total supply is fixed from the point of view of the economy
it is an active factor
From the economy’s viewpoint, total land supply is fixed and perfectly inelastic.
Question 05
Which of the following is a feature of labour?
labour can be stored like a commodity
labour is perishable
labour is inseparable from machines
labour is always homogeneous
A day’s labour lost cannot be stored or recovered fully later, so labour is perishable.
Question 06
Labour is called an active factor because:
it has fixed supply
it is free gift of nature
it earns interest
without labour, land and capital may not produce anything
Labour activates other factors and is therefore treated as an active factor.
Question 07
Capital is best defined as:
produced means of production
all wealth in existence
money only
free gift of nature used in production
Capital means man-made goods used for further production, such as machines and tools.
Question 08
Which of the following is circulating capital?
factory building
machine tool
raw material
dam
Circulating capital is used up in a single production process, like seeds, fuel and raw materials.
Question 09
Human capital refers to:
money invested in shares
human skill and ability
labour union strength
social roads and bridges
Human capital means skills, education and abilities embodied in people.
Question 10
Capital formation means:
increase in consumer spending only
increase in money supply
government borrowing only
sustained increase in stock of real capital
Capital formation or investment increases the stock of real productive assets.
Question 11
Which is the correct first stage of capital formation?
savings
mobilisation of savings
investment
depreciation
Capital formation begins with savings, then mobilisation of savings, and then investment.
Question 12
The production function expresses the relationship between:
cost and revenue
income and consumption
inputs and output
price and demand
Production function states the technological relationship between inputs used and output produced.
Question 13
In the production function Q = f(a, b, c, d...n), Q stands for:
quantity of money
rate of output
quality of labour
quota of production
Q is the output variable in the production function.
Question 14
Short run in production means a period in which:
all factors are variable
all factors are fixed
output cannot change
some factors are fixed and some are variable
In the short run, at least one factor remains fixed while others may vary.
Question 15
Long run in production means a period in which:
all factors are variable
all factors are fixed
demand is constant
price is fixed by market
In the long run, firms can vary all inputs including plant size.
Question 16
Total product (TP) refers to:
output per unit of variable factor
extra output from one more unit of input
total output produced by all units of a variable factor
average output from fixed factors
Total product is the total output generated by the employed quantity of variable input.
Question 17
Average product (AP) is calculated as:
TP × variable input
TP ÷ units of variable input
change in TP ÷ change in input
MP ÷ TP
Average product is output per unit of variable factor.
Question 18
Marginal product (MP) is calculated as:
change in TP divided by change in variable input
TP divided by total factor cost
TP minus AP
AP plus TP
Marginal product is the addition to total product from one extra unit of variable factor.
Question 19
The law of variable proportions operates in the:
very long run only
market period only
long run when all factors vary
short run when one factor is variable and others are fixed
This law explains output behaviour when more of one variable factor is combined with fixed factors.
Question 20
Which stage of production is considered rational for a producer?
Stage I only
Stage II only
Stage III only
Stage I and III
A rational producer operates in Stage II, where both AP and MP are positive and diminishing.
Question 21
Stage I of the law of variable proportions ends where:
MP becomes zero
TP is maximum
AP is maximum and MP equals AP
MP becomes negative
Stage I ends where average product reaches its maximum and marginal product equals average product.
Question 22
Stage II ends where:
MP becomes zero and TP is maximum
AP is maximum
TP begins
fixed cost becomes zero
At the end of Stage II, marginal product becomes zero and total product is at its maximum.
Question 23
If marginal product is negative, the producer is operating in:
Stage I
Stage II
equilibrium stage
Stage III
Negative marginal product means total product is falling, which is Stage III.
Question 24
Returns to scale relate to change in output when:
one input changes and others are fixed
all inputs change in the same proportion
price changes only
technology is constant and no input changes
Returns to scale is a long-run concept where all factors are varied together.
Question 25
If output doubles when all inputs are doubled, the firm is experiencing:
increasing returns to scale
decreasing returns to scale
constant returns to scale
negative returns
Equal proportionate increase in output and inputs means constant returns to scale.
Question 26
Isoquant is a curve showing:
different combinations of two inputs producing the same output
different combinations of two goods giving same utility
different prices for same output
different outputs at same total cost
Isoquant is the producer-side counterpart of indifference curve.
Question 27
An isocost line shows:
same utility level
same total output
same marginal product
different combinations of two inputs that cost the same total amount
Isocost line represents input combinations available to the producer for a given total outlay.
Question 28
Producer’s equilibrium using isoquant-isocost analysis occurs where:
two isoquants intersect
an isoquant is tangent to an isocost line
total cost is zero
marginal product is negative
At equilibrium, the producer chooses the least-cost combination for a given output where isoquant touches isocost.
Question 29
When marginal product is greater than average product, average product will:
remain constant
increase
decrease
be zero
When MP > AP, marginal pulls average up → AP increases. Standard ICAI concept.
Question 30
If AP is rising, then MP is:
greater than AP
less than AP
zero
negative
Marginal product pulls average product. So when AP rises, MP must be above AP.
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MCQ Test · Chapter 3 · Unit 1 · Theory of Production