# FIXED AND VARIABLE COSTS & MARGINAL COST

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FIXED AND VARIABLE COSTS & MARGINAL COST

# FIXED AND VARIABLE COSTS & MARGINAL COST

1. _________are costs that do not vary with output, upto a certain level of activity.
2. (a) Variable
(b) Fixed
(c) Both (a) and (b)
(d) Neither (a) nor (b)

(b) Fixed

3. Fixed Cost can be defined as
4. (a) Which does not change with output
(b) Which changes with Sales
(c) Which changes proportionately with output
(d) All of the above

(a) Which does not change with output

5. Fixed Costs are –
6. (a) Period—related
(b) Product—related
(c) Both (a) and (b)
(d) Neither (a) nor (b)

(a) Period—related

7. Fixed Costs are a function of —
8. (a) Output
(b) Time
(c) Both (a) and (b)
(d) Neither (a) nor (b)

(b) Time

9. …..cost must be paid even if the Firm’S level Of output is zero.
10. Variable (a) Direct
(b) Incremental
(c) Fixed

(d) Fixed

11. If a Fire produces zero output in the short period —
12. (a) Its Total Cost will be zero
(b) Its Variable Cost will be positive
(c) Its Fixed Cost will be positive
(d) Its Average Cost will be zero

(c) Its Fixed Cost will be positive

13. ………Cost will be incurred even when the Firm’s produces Nil output.
14. (a) Variable
(b) Fixed
(c) Both (a) and (b)
(d) Neither (a) nor (b)

(b) Fixed

15. As output increases, Total Fixed Cost —
16. (a) Decreases
(b) Increases
(c) Remains constant
(d) Becomes zero

(c) Remains constant

17. Some portion of Fixed Costs need not be incurred when operations are suspended. These are called —
18. (a) Avoidable Fixed Costs
(b) Committed Fixed Costs
(c) Variable Costs
(d) Semi—Variable Costs

(a) Avoidable Fixed Costs

19. Some portion of Fixed Costs cannot be avoided even when operations are suspended. These are called —
20. (a) Discretionary Fixed Costs
(b) Committed Fixed Costs
(c) Variable Costs
(d) Semi—Variable Costs

(b) Committed Fixed Costs

21. Which of the following is not a Fixed Cost?
22. (a) Payment of Interest on Borrowed Capital
(b) Charges for Fuel and Electricity
(c) Depreciation Charges on Equipment and Buildings
(d) Contractual Rent for Equipment of Building

(b) Charges for Fuel and Electricity

23. Of the following which one corresponds to Fixed Cost ?
24. (a) Payments for Raw Material
(b) Labour Costs
(c) Transportation Charges
(d) Insurance Premium on Property

(d) Insurance Premium on Property

25. The following are some Costs incurred by a clothing Manufacturer. State which among them will be considered as Fixed Cost.
26. (a) Cost of Cloth
(b) Piece Wages paid to Workers
(c) Depreciation on Machines owing to time
(d) Cost of Electricity for running machines

(c) Depreciation on Machines owing to time

27. ______ are level of output.
28. (a) Variable
(b) Fixed costs that change, based on the
(c) Both (a) and (b)
(d) Neither (a) nor (b)

(a) Variable

29. Variable Costs are —
30. (a) Period—related
(b) Product—related
(c) Both (a) and (b)
(d) Neither (a) nor (b)

(b) Product—related

31. Variable Costs are a function of —
32. (a) Output ,’
(b) Time
(c) Both (a) and (b)
(d) Neither (a) nor (b)

(a) Output

33. Cost must be incurred only when the Firm’s produces output.
34. (a) Variable
(b) Fixed
(c) Both (a) and (b)
(d) Neither (a) nor (b)

(a) Variable

35. Variable Costs are incurred only when production takes place. So, they are in the nature of —
36. (a) Discretionary Costs
(b) Committed Costs
(c) Fixed Costs
(d) Semi—Variable Costs

(a) Discretionary Costs

37. All Variable Costs are avoidable or discretionary in nature. This statement is —
38. (a) TRUE
(b) FALSE
(c) Partially True
(d) Nothing can be said

(a) True

39. As output increases, Total Variable Cost —
40. (a) Decreases
(b) Increases
(c) Remains constant
(d) Becomes zero

(b) Increases

41. Which Cost increases continuously with the increase in production?
42. (a) Average Cost
(b) Marginal Cost
(c) Fixed Cost
(d) Variable Cost

(d) Variable Cost

43. Total Variable Costs always vary proportionately with output. This statement is —
44. (a) TRUE
(b) FALSE
(c) Partially True
(d) Nothing can be said

(b) False

45. Over certain ranges of production Variable costs vary less or more thant proportionately depending on the utilisation of fixed facilities and resources during the production process. This statement is —
46. (a) TRUE
(b) FALSE
(c) Partially True
(d) Noting can be said

(a) True

47. Variable Cost includes the Cost of —
48. (a) Buying Land and Building
(b) Hire Charges paid for the Machinery
(c) Salary to Manager
(d) Material Bought

(d) Material Bought

49. Which of the following is an example of Variable Cost in the short run?
50. (a) Cost of Equipment
(b) Interest Payment on past borrowings
(c) Payment of Rent on Building
(d) Cost of Raw Materials

(d) Cost of Raw Materials

51. Marginal Cost changes due to change in ……………… Cost
52. (a) Variable
(b) Fixed
(c) Total
(d) Average

(a) Variable

53. ………………………is the addition made to the total cost by production of an additional unit of output.
54. (a) Fixed Cost
(b) Variable Costs
(c) Total Costs
(d) Marginal Costs

(d) Marginal Costs

55. Marginal Cost can be defined as —
56. (a) Change in Average Variable Cost divided by Change in Total Output
(b) Change in Average Fixed Cost divided by Change in Total Output
(c) Change in Total Fixed Cost divided by Change in Total Output
(d) Change in Total Cost due to Change in Total Output by one additional unit.

(d) Change in Total Cost due to Change in Total Output by one additional unit.

57. ………Costs are important in short term decision making of the Firm, to determine the output at which profits can be maximized.
58. (a) Fixed
(b) Sunk
(c) Opportunity
(d) Marginal

(d) Marginal

59. With which of the following is the concept of Marginal Cost closely related?
60. (a) Variable Cost
(b) Fixed Cost
(c) Opportunity Cost
(d) Economic Cost

(a) Variable Cost

61. Marginal Cost is independent of FiXed Cost. This statement is —
62. (a) TRUE
(b) FALSE
(c) Partially True
(d) Nothing can be said

(a) True

63. Marginal Cost is independent of Variable Cost. This statement is —
64. (a) TRUE
(b) FALSE
(c) Partially True
(d) Nothing can be said

(b) False

65. Which of the following will affect Marginal Costs?
66. (a) Variable Costs
(b) Output Quantity
(c) Both (a) and (b)
(d) Neither (a) nor (b)

(c) Both (a) and (b)

67. Which of the following will not affect Marginal Costs?
68. (a) Variable Costs
(b) Output Quantity
(c) Fixed Costs
(d) All of the above

(c) Fixed Costs

69. TCn – TCn-1 = Which cost function?
70. (a) Marginal Cost
(b) Average Cost
(c) Total Cost
(d) None of the above

(a) Marginal Cost

71. Marginal Costs per unit =
72. (a) Change in Total Costs / Change Quantity in Output
(b) Change in Variable Costs /Change in output Quantity
(c) Either (a) or (b)
(d) Neither (a) nor (b)

(c) Either (a) or (b)

73. Which of the following describes the behaviour of Marginal Cost Curve?
74. (a) Declines first, reaches its minimum and then rises
(b) Rises first, reaches a maximum and then
(c) declines constanthroughoUt all output levels Remains
(d) Nothing can be said

(a) Declines first, reaches its minimum and then rises

75. MarginaCl ost Curve of a Firm Will be —
76. (a) L Shaped
(b) J shaped
(c) U Shaped
(d) Inverted U Shaped

(c) U Shaped

77. marginal Cost Curve of a Firm will show ………… behaviour when compared to Marginal Product (MP) curve.
78. (a) Same
(b) Reverse
(c) Either (a) OF (b)
(d) Nothing can be said

b. Reverse

79. Diminishing Marginal Returns implies:
80. (a) Constant MC
(b) Increasing Marginal Cost
(c) Decreasing DC
(d) All of the above

(b) Increasing Marginal Cost

81. What is the MC of 6th unit of output? 0 1 2 3 4 5 6 7 Q 48 73 94 114 130 48 168 189 TC
82. (a) 24
(b) 16
(c) 20
(d) 21

(c) 20

83. Additional cost incurred by a Firm as a result Of a business decision —
84. (a) Sunk Cost
(b) Replacement Cost
(c) Incremental Cost
(d) Extra Cost

(c) Incremental Cost

85. Costs which are already incurred once and for all,and cannot be recovered.
86. (a) historical cost
(b) Sunk Cost
(c) Private Cost
(d) None Of the above

(C) Private Cost

87. Which of the following statement is correct?
88. (a) An increase in price will make Replacement Cost higher than historical Cost.
(b) A decrease in price will make replacement Costs higher than historical Cost.
(c) An increase price will make Replacement Costs towel than Historical Cost.
(d) None of the above

(a) An increase in price will make Replacement Cost higher than historical Cost.

89. The cost incurred during the acquisition of an asset
90. (a) Sunk Cost
(b) Replacement cost
(c) Histot ical cost
(d) None of the above

(c) Histot ical cost

91. Cost Of Production incurred by an Individual firm is —
92. (a) Private Cost
(b) Social Cost
(c) Production Cost
(d) None of the above

(a) Private Cost

93. Social Cost =
94. (a) Explicit Cost + Implicit Cost
(b) Private Cost + External Cost
(c) Private Cost + Internal Cost
(d) None of the above

(b) Private Cost + External Cost

95. Assume that when price is 1 40, the quantity demanded is 15 units and when price is T 38, the quantity demanded is 16 units. Based on this information, what is the marginal revenue resulting from a increase in output from 15 units to 16 units—
96. (a) 36
(b) 32
(c) 24
(d) 8

(d) 08

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