ECO402

Micro economics
Lesson # 1
1. The study which deals with the utilization of limited resources in the production of useful goods and
services is called as:

a. Economics b. Political Science c. Geography d. Sociology

2. Which of the following is/are the area/s of study for the macroeconomics?

a. Economic Growth b. Inflation c. Unemployment d. All of the given options

3. The mathematical representation of economic theory used to make a prediction is called as:

a. Identity b. Model c. Equation d. Formula

4. The geographical area which is used by the sellers and buyers in order to purchase or sale their goods and
services is known as:

a. Locality b. Industry c. Market d. None of the given options

5. Microeconomics deals with:

a. Inflation
b. International economic relations
c. Individual economic units
d. Aggregate economic activity

6. Which of the following is a normative statement?

a. Generally quantity demanded tends to decrease due to increase in the price of the product.
b. Proper wage rate should be paid to the auto workers to make them an active member of the society.
c. Percentage of population engaged in agriculture in Pakistan is falling.
d. Earth revolves around the sun

7. Which of the following is a positive statement?

a. Percentage of population engaged in agriculture in Pakistan is falling.

b. High wage rate should be paid to the auto workers to make them an active member of the society.
c. Population explosion should be controlled.
d. The basic rights of the people should be protected through democratic institutions.
Lesson # 2
8. Which of the following describes a situation in which resources are limited but can be used in different
ways; so one good or service must be sacrificed for another:

a. Scarcity b. Production c. consumption d. Wealth

9. The knowledge and skills acquired by a worker through education and experience is categorized as:

a. Physical Capital b. Human Capital c. Wealth d. Owner

10. Which of the following curves shows the combination of goods and services available to an economy,
given that all productive resources are fully and efficiently employed?

a. Isoquant b. Budget line c. Iso-cost line d. Production possibility frontier

11. Due to increase in the resources of economy, the production possibilities frontier (PPF) would:

a. Shift Inward b. Shift Outward c. Become flatter d. become vertical

12. Which of the following is NOT an example of natural resources:

a. Water b. Mineral c. Oil d. Machine

13. All the machines, buildings, equipment and roads are included in the category of capital.

a. TRUE b. FALSE

14. The production possibility frontier (PPF) curve is bowed out because the resources are:

a. Not perfectly adaptable to the production of the two goods

b. perfectly adaptable to the production of the two goods
c. Abundant and can be used in different ways
d. All of the given options are true

15. All of the following are factors of production EXCEPT:

a. Demand b. Labor c. Entrepreneurship d. Natural Resources

16. Suppose an organization opens its branch and buys new tables and chairs. These tables and chairs would
most likely be which of the following factors of production?

a. Land b. Capital c. Entrepreneurship d. Natural Resources

17. The production possibility Frontier (PPF) curve shifts inward as a result of a technological innovation.

a. TRUE b. FALSE

18. The Production Possibility Frontier (PPF) curves shifts outward as a result of:

a. an increase in the economy’s resources

b. an increase in labor discrimination
c. A decrease in overall production level
d. an increase in unemployment

19. Suppose an organization opens its branch and hires new members. These new members would most
likely be which of the following factors of the production?

a. Capital b. Money c. Entrepreneurship d. Labor

20. The human effort, physical and mental, used by workers in the production of goods and services are
known as labor.

a. Capital b. Money c. Entrepreneurship d. Labor

Lesson # 3
21. The current price of a good at the time of sale is called as:

a. Real Price b. Nominal Price c. Inflation d. Revenue

22. The market clearing price is determined by the intersection of:

a. Isoquant and iso-cost b. Budget line and indifference curve

c. Revenue and cost d. Demand and Supply

23. If market price is below equilibrium price, it will create:

a. Surplus b. Shortage c. Spillover d. Inflation

24. If market price is above equilibrium price, it will create:

a. Surplus b. Shortage c. Spillover d. Inflation

25. Which of the following is NOT a non- price determining variable of demand?

a. Tastes b. Income c. Cost of production d. Substitutes

26. Which of the following is NOT a non- price determining variable of Supply?

a. Cost of labor b. Cost of capital c. Cost of raw materials d. Income

27. Which of the following curve shows how much of a good producers are willing to sell at a given price?

a. The Supply Curve b. The Demand Curve c. The PPF curve d. Income

28. The real price can be calculated by which of the following formula?

a. Real Price = (Nominal price current year / CPI current year) * Nominal price current year
b. Real Price = (CPI base year / CPI current year) * Real price current year
c. Real Price = (CPI base year + CPI current year) * Nominal price current year
d. Real Price = (CPI base year / CPI current year) * Nominal price current year

29. Supply and demand interacts to determine the market-clearing price.

a. FALSE d. TURE

30. When cost of labor increases, the supply curve shifts to the right.

a. FALSE d. TURE

31. Changes in quantity supplied are shown by:

a. Movements along the demand curve b. Shifting the entire supply curve
c. Movements along the Supply curve d. Shifting the entire demand curve

32. All of the following are non-price determining variables of demand EXCEPT:

a. Cost of Production b. Price of related goods c. Consumer tastes d. Income

Lesson # 4
33. The impact of simultaneous increase in the demand and supply on the equilibrium price and quantity
depends upon:

a. The size of change b. The direction of change

c. The shape of supply and demand curve d. All of the given options

34. A vertical demand curve has a price elasticity of:

a. Zero b. Infinity c. One d. Less than One

35. When cross elasticity of demand for A and B is positive number, one can conclude that:

a. The good are cheaper b. The good are inferior

c. The goods are substitutes d. The goods are complements

36. When cross elasticity of demand for A and B is negative number, one can conclude that:

a. The good are cheaper b. The good are inferior

c. The goods are substitutes d. The goods are complements

37. Consider car and petrol are compliments. When price of petrol goes up, the demand curve for car:

a. Shifts to the left b. Shifts to the Right

c. Remains constant d. Shifts to the right initially and then returns to its original position

38. Considering rice as a normal good, if consumer’s income increases then the demand curve of rice will:

a. Shifts to the left b. Shifts to the Right

c. Remains constant d. Shifts to the right initially and then returns to its original position

39. The supply curve shifts rightward due to improvement in technology.

a. FALSE d. TURE

40. The supply curve for good X will shift leftward due to:

a. A situation in which quantity demanded for good X exceeds quantity supplied for good X
b. A decrease in the wages of workers employed to produce good X
c. A technology improvement in the production of good X
d. An increase in the cost of the machinery used to produce good X

41. Assume that coffee and milk are complements. When the price of coffee goes up the demand curve for
milk:

a. Shifts to the left b. Shifts to the Right

c. Remains constant d. Shifts to the right initially and then returns to its original position

42. In case of infinitely elastic demand, the demand curve becomes:

a. Vertical b. downward sloping c. Horizontal d. Upward Sloping

43. Income of an individual is non-price determining variable of supply.

a. TRUE d. FALSE
Lesson # 5
44. The income elasticity of demand for superior goods is:

a. Equal to one b. Greater than one c. Less than one d. Less than zero

45. For which type of goods short-run elasticity is greater than long-run elasticity?

a. Durables b. Necessities c. Perishable d. Substitutes

46. If the percentage change in quantity demanded is equal to the percentage change in price, the demand
is said to be:

a. Elastic b. Inelastic c. Unit elastic d. perfectly elastic

47. The quantity demanded for Rice is expressed as: Qd = 50 - 5P. The quantity supplied of Rice is expressed
as: Qs = 18+3P. Refer to the above scenario, what is the equilibrium price of rice?

a. 2 b. 4 c. 7 d. 9

48. The quantity demanded for Rice is expressed as: Qd = 50 - 5P. The quantity supplied of Rice is expressed
as: Qs = 18+3P. Refer to the above scenario, what is the equilibrium quantity of rice?

a. 20 b. 30 c. 35 d. 40

49. The price elasticity of supply is usually positive because:

a. Price and quantity demanded are directly related

b. Price and quantity Supplied are not directly related
c. Price and quantity Supplied are directly related
d. Price and Income are directly related

50. Income Elasticity of demand is greater than one for:

a. Inferior good b. Superior goods c. Normal goods d. Giffen good

51. For which of the following type of goods, the income elasticity of demand is negative:

a. Giffen good b. Normal goods c. Superior goods d. Inferior good

52. The cross price elasticity of demand for tennis balls and rackets is -3. This indicates that tennis balls and
rackets are:

a. Compliments b. Substitutes c. Unrelated goods d. All of the given Options

53. Income elasticity of demand measures the percentage change in quantity demanded resulting from a
one percent change in income.

a. TRUE d. FALSE

54. Cross price elasticity of demand for substitutes is negative.

a. TRUE d. FALSE

Lesson # 6
55. Which of the following represents the limited income of consumer for the purchase of goods?

a. Iso-cost line b. Indifference curve c. Isoquant d. Budget Constraint

56. Which of the following line shows the different combinations of market baskets that provide same
utility to a person?

a. Iso-cost line b. Indifference curve c. Isoquant d. Budget Constraint

57. Generally, the slope of indifference curve is:

a. Downward to the right b. Upward to the left

c. Upward to the Right d. Downward to the Left

58. The set of indifference curve which describe the preference of a consumer for different utility level is
known as:

a. Indifference map b. Cartesian plane

c. Production possibility frontier d. Utility map

59. The rate at which a consumer is willing to give up the amount of one good in order to get more of
another good is called:

a. Marginal rate of substitution b. Marginal rate of technical substitution

c. Marginal rate of transformation d. None of the given options

60. Two goods are perfect complements when the indifference curve between the goods is shaped as:

a. Increasing b. Decreasing c. Constant d. Right angle

61. Which of the following are the assumptions regarding consumer preferences?

a. All of the given options b. Preferences are complete

c. Preferences are transitive d. consumers always prefer more of any good or less

62. If indifference curves will slope upward then it would violate the assumption that more of any
commodity is preferred to less.

a. FALSE d. TRUE

63. The things for which less is preferred to more are known as:

a. BADS b. Normal c. Superior d. Inferior

64. Marginal rate of substitution is measured by the slope of:

a. Indifference Curve b. Supply Curve

c. Demand Curve d. Production Possibility Frontier (PPF) Curve

65. The curve that represents all combinations of market baskets that provide the same level of satisfaction
to a person is known as:

a. Angle Curve b. Indifference Curve

c. Demand Curve d. Production Possibility Frontier (PPF) Curve

66. Usually, the indifference curves slope upward to left.

a. FALSE d. TRUE

Lesson # 7
67. In economics, which one of the following term shows the satisfaction of a consumer obtained from the
market basket:

a. Utility b. Advantage c. Benefit d. Pleasure

68. Which of following shows ordering the market basket from most preferred to least preferred?

a. Cardinal utility b. Ordinal utility c. Marginal utility d. Total utility

69. Which of the following shows combinations of two commodities for which total money spent equal to
total income?

a. Iso-cost line b. Indifference curve c. Isoquant d. Budget Line

70. Due to the increase in income, budget line will:

a. Shift Outward b. Shift Inward c. Become vertical d. Remain same

71. In which of the following situation the consumer buys in extreme, buy all of the one commodity and
none of other commodity?

a. Corner solution b. Matching grant

c. Non matching grant d. None of the given options

72. Suppose there is an increase in income of consumer, his budget line will:

a. First remain same and then shift inward gradually b. Remain Same
c. Shift outward d. Shift Inward

73. If the price of one good increases, the budget line shifts outward, pivoting from the other good’s
intercept.

a. FALSE b. TRUE

74. A Corner solution exists if a consumer purchases:

a. Some of one category of good and some of other

b. None of the given options is true
c. None from any category of goods
d. All of one category of good and none of another

75. Which of the following indicates all combinations of two commodities for which total money spent
equals total income:

a. Angel curve b. Budget line

c. Indifference curve d. Production Possibility frontier

Lesson # 8
75. In case of corner solution, the consumer’s MRS does not necessarily equal the price ratio.

a. FALSE b. TRUE

76. Which of the following expressions shows that consumer satisfaction is maximized:

a. Slop of budget line is greater than slop of indifference curve

b. Slop of budget line is equal to the slop of indifference curve
c. Slop of budget line is less than slop of indifference curve
d. Slop of budget line is greater than marginal rate of substitution
77. Ali is spending his income on two goods x and y. Which of the following expressions represents that Ali’s
satisfaction is maximized?

a. Px / Py = Ali’s money income b. MRSxy = Px / Py

c. MRSxy is at a maximum d. MRSxy = Ali’s money income

78. Ahmad is spending his income (I) on purchasing food and books. Suppose F is the amount of food
purchased and B is the amount of books. If the price of food is P f and Price of books is PB, then Ahmad’s
budget line can be written as:

a. Pf + PB = I b. Pf + F = I c. PfF + PBB = I d. F + B = I

Lesson # 9
79. Which of the following concepts measures the additional satisfaction obtained from consuming one
additional unit of a good?

a. Total utility b. Average utility c. Marginal utility d. None of the given options

80. According to law of diminishing marginal utility, total utility increases at a/an:

a. Constant rate b. Average rate c. Increasing rate d. decreasing rate

81. Generally, the slope of marginal utility curve is:

a. Zero b. Positive c. Negative d. Un define

82. According to law of diminishing marginal utility, as more and more of a good is consumed, consuming
additional amounts will yield:

a. Greater additions to utility b. Smaller additions to utility

c. No additions to utility d. At first smaller and then larger additions to utility

83. According to the equal marginal principle, the consumer will maximize his satisfaction at the point when
the:

a. Marginal utility is equal to average utility

b. Marginal utility is equal to total utility
c. Marginal utility per dollar of expenditure is the same for each good
d. Price of each good is exactly equal to the price of every other good consumed
84. Suppose Ali is consuming two goods (food and clothing). His utility will be maximized when the budget
is allocated such that:

a. The ratio of total utility of food to the price of clothing equals the ratio of the marginal utility of clothing to
the price of food
b. The ratio of the marginal utility of food to the price of food equals the ratio of the marginal utility of
clothing to the price of clothing
c. The marginal utility of food equals the marginal utility of clothing
d. The marginal utility of food times the price of food equals the marginal utility of clothing times the price of
clothing

85. When a consumer starts consuming a thing, his marginal utility gradually decreases. This is law of:

a. Increasing marginal utility b. increasing marginal cost

c. Equi-marginal utility d. Diminishing marginal utility

86. The additional satisfaction obtained from consuming one additional unit of a good is described as:

a. Total utility b. Equi-marginal utility c. Average utility d. Marginal utility

87. Usually, the total utility increases at a decreasing rate. This is graphically mentioned by:

a. Negative slope of marginal utility curve b. Negative slope of Indifference curve

c. Positive slope of marginal utility curve d. None of the given options

88. The Paasche index calculates the amount of money at current-year prices that an individual requires to
purchase a current bundle of goods and services divided by the cost of purchasing the same bundle in base
year.

a. FALSE d. TRUE

Lesson # 10
89. For a normal good, income-consumption curve is:

a. Vertical b. Horizontal c. Positively sloped d. Negatively sloped

90. For an inferior good, income-consumption curve is:

a. Vertical b. Horizontal c. Positively sloped d. Negatively sloped

91. Engel curve shows the relationship between quantity of a good consumed with:

a. Income b. Price of the good c. Price of related goods d. None of the given options
92. For a normal good, Engel curve is:

a. Vertical b. Horizontal c. Upward sloping d. Downward sloping

93. If the price consumption curve between two goods X and Y is downward-sloping, the two goods (X and
Y) are considered as:

a. Substitutes b. Compliments c. Inferior goods d. Independent

94. If the price consumption curve between two goods X and Y is upward-sloping, the two goods (X and Y)
are considered as:

a. Substitutes b. Compliments c. Inferior goods d. Independent

95. When a change in the price of one good has no effect on the quantity demanded of the other good,
these two goods are considered as:

a. Substitutes b. Independent c. Compliments d. None of the given options

96. If the price consumption curve is downward-sloping, the two goods are considered as substitutes.

a. FALSE b. TRUE

97. When the income-consumption curve has a negative slop, the quantity demanded decreases with
income.

a. FALSE b. TRUE

98. What is the shape of Engle curve in case of inferior good?

a. Vertical b. Horizontal c. Upward sloping d. Downward sloping

Lesson # 11
99. As more consumers enter the market, the market demand curve will:

a. Remain same b. Shift to the left c. Shift to the right d. Become horizontal

100. When price increases of a good having inelastic demand, its expenditure:

a. Increases b. Decreases
c. Remains unchanged d. First decreases and then increases
101. When price increases of a good having elastic demand, its expenditure:

a. Increases b. Decreases
c. Remains unchanged d. First decreases and then increases

102. When price increases of a good having unit elastic demand, its expenditure:

a. Increases b. Decreases
c. Remains unchanged d. First decreases and then increases

103. Arc elasticity calculates elasticity:

a. At a single point b. Of giffen goods only

c. Of normal goods only d. Over a range of prices

104. Which of the following is the formula to calculate point elasticity of demand?

a. Point elasticity of demand = (P/Q) * 100 b. Point elasticity of demand = (P/Q) (1/slop)
c. Point elasticity of demand = (P*Q) (1/slop) d. Point elasticity of demand = (P+Q) (1/slop)

105. When the price of an item declines, the substitution effect always leads to an increase in the quantity
of the item demanded.

a. FALSE b. TRUE

Lesson # 12
106. Bandwagon effect leads to a leftward shift in the demand curve.

a. FALSE b. TRUE

107. The maximum amount a consumer is willing to pay and the amount he actually pays, is called:

a. Producer Surplus b. Consumer Surplus C. Externality D. None of the above

108. If a person’s demand for a good is affected by number of other people who have purchased the same
good, it is called:

a. Market Equilibrium b. Network Externality C. Producer Surplus D. Consumer Surplus

109. The snob effect is the desire of a consumer to own exclusive or unique goods.

a. FALSE b. TRUE
110. Network externalities can be positive as well as negative.

a. FALSE b. TRUE

111. Snob effect is synonymous to:

a. Bandwagon Effect b. Positive Network Externality

C. Negative Network Externality D. All of the given options

Lesson # 13
112. _________ is the difference between expected payoff and actual payoff.

a. Expected Value b. Deviation C. Probability D. Risk

113. The greater is the variability from expected value, the lesser will be the risk.

a. FALSE b. TRUE

114. Standard deviation is the square root of the average of the squares of the deviations of the payoffs
from their:

a. Expected Value b. Variance C. Probability D. None of the given options

115. The likelihood of occurrence of each outcome is called:

a. Choice b. Certainty C. Probability D. Risk

116. Expected value is the measure of central tendency.

a. FALSE b. TRUE

117. Variability is the extent to which possible outcomes of an uncertain event may differ.

a. FALSE b. TRUE

Lesson # 14
118. _________ is an example of being risk averse.

a. Gambling b. Leisure time C. Use of insurance D. Criminal Activity

119. A person who prefers a certain given income to a risky income with the same expected value is known
as:

a. Risk loving b. Risk neutral C. Risk averse D. None of the given options

120. The greater is the variability, the greater will be the risk premium.

a. FALSE b. TRUE

121. People can be:

a. Risk loving b. Risk neutral C. Risk averse D. All of the given options are true

122. A person is said to be risk loving if he prefers an uncertain income over a certain income with the same
expected value.

a. FALSE b. TRUE

Lesson # 15
123. By obtaining more information, consumer can _______ the risk.

a. Decrease b. Increase C. Take D. Not Change

124. Return on an asset is the total monetary flow of an asset as a fraction of its:

a. Demand b. Price C. Insurance D. Supply

125. Capital gain is a decrease in the value of an asset.

a. TRUE b. FALSE

126. According to the law of large numbers, the average outcome of many similar events is non-predictable.

a. TRUE b. FALSE

127. Short-term government bond is an example of:

a. Capital gain b. Risky asset C. Riskless asset D. None of the given options

128. Something that provides flow of money or services to its owner is called asset.

a. TRUE b. FALSE
Lesson # 16
129. Suppose in a production process, only one variable input (labor) is used with fixed amount of capital.
When amount of labor is 10, output is at 120 units. From this we may infer that:

a. The marginal product of labor is 12 b. The total product of labor is 1/2

C. The average product of labor is 12 D. None of the given options

130. The formula for average product of labor is:

a. Output/Labor Input b. ∆Output/∆Labor Input

C. ∆Labor Input/∆Output D. ∆Output x ∆Labor Input

131. Which one of the following is correct?

a. The average product of labor (AP) or output per worker increases and then decreases.
b. The average product of labor (AP) or output per worker decreases and then increases.
C. The average product of labor (AP) or output per worker becomes constant at first and then decreases.
D. The average product of labor (AP) or output per worker becomes constant at first constant and then
increases.

132. Long-run is the amount of time needed to make:

a. All production inputs variable b. All production inputs fixed

C. Both fixed and variable inputs D. None of the given options

133. When marginal product is less than average product, average product is:

a. Decreasing b. Increasing C. Maximum D. Zero

134. Which of the following is(are) the factor(s) of production?

a. Raw material b. Labor C. Capital D. All of the given options

135. Technology is assumed to be constant in the production function.

a. FALSE b. TRUE

136. All factors of production are variable in:

a. Neither in short-run nor in the long-run b. Short run

C. Long-run D. Both short-run and long-run
137. Average productivity of a firm is found by dividing total output with average output.

a. FALSE b. TRUE

Lesson # 17
138. The change in output due to change in labor input is mathematically estimated as:

a. MPL*∆L b. MPL*∆K C. MPK*∆L D. MPK*∆K

139. The situation in which doubling the level of inputs produced exactly doubles the output level is called as:

a. Constant returns to scale b. Increasing returns to scale

C. Decreasing returns to scale D. None of the given option

140. In the long run, both labor and capital are:

a. Fixed b. Variable C. Fixed and variable D. None of the given option

141. The situation in which doubling the level of inputs produced more than doubles the output level is called as:

a. Constant returns to scale b. Increasing returns to scale

C. Decreasing returns to scale D. None of the given option

142. The situation in which doubling the level of inputs produced less than doubles the output level is called as:

a. Constant returns to scale b. Increasing returns to scale

C. Decreasing returns to scale D. None of the given option

143. If a firm’s output doubles when all inputs are doubled, the firm is said to be experiencing decreasing returns
to scale.

a. TRUE b. FALSE

144. Marginal rate of technical substitution gives the trade-off between factors of production keeping the output
to increase.

a. TRUE b. FALSE

145. Isoquant curves are downward sloping and convex to the origin.

a. TRUE b. FALSE

142. When output of a firm more than doubles as a result of doubling all the inputs, it is called:

a. Constant returns to scale b. Increasing returns to scale

C. Decreasing returns to scale D. None of the given option
Lesson # 18
143. The sum of actual expenses and depreciation for capital is called as:

a. Accounting cost b. Economic cost C. Total cost D. Variable cost

144. The expenditures that have been made and cannot be recovered are known as:

a. Marginal cost b. Variable cost C. Sunk cost D. Average cost

145. The formula of Marginal Cost is expressed as:

a. ∆VC/∆Q b. ∆Q/∆TC C. ∆Q/∆VC D. ∆VC/∆Y

146. The point where marginal cost is equal to average variable cost, the marginal cost and average variable
cost curves are:

a. Maximum b. Constant C. Minimum D. Peak

147. Cost associated with opportunities that are foregone when a firm’s resources are not put to their
highest-value use is called:

a. Economic cost b. Accounting cost C. Sunk cost D. Opportunity cost

148. Cost associated with opportunities that are foregone is called:

a. Economic cost b. Accounting cost C. Sunk cost D. Opportunity cost

149. Fixed Cost is the cost that does not vary with the level of output.

a. TRUE b. FALSE

150. If total cost is represented by TC, fixed cost by FC and variable cost by VC, then total cost (TC) is
presented by the expression:

a. TC = VC b. TC = FC - VC C. TC = FC + VC D. TC = VC - FC

151. Marginal Cost (MC) is the cost per unit of output.

a. TRUE b. FALSE
Lesson # 19
152. The user cost of capital is calculated by using which of the following formula:

a. User cost of capital=Economic depreciation+(Interest rate)(Value of capital)

b. User cost of capital=Interest rate +(Economic depreciation)(Value of capital)
C. User cost of capital=Value of capital +(Interest rate)(Economic depreciation)
D. User cost of capital= (Economic depreciation)(Interest rate)

153. A line showing different combinations of capital and labor that can be purchased for same cost is called as:

a. Iso-revenue line b. Iso-cost line C. Profit line D. Budget line

154. The slope of iso-cost line is expressed by using following formula:

a. W*r b. –w/r C. –r/w D. r/w

155. Which of the following shows the rate at which capital can be substituted for labor with no change in cost?

a. Slope of demand curve b. Slope of budget line

C. Slope of iso cost line D. Slope of isoquant

156. The minimum cost combination for two inputs (capital and Labor) is expressed as:

a. MPL/r = MPK/w b. MPL/p = MPK/r C. MPL/w = MPK/p D. MPL/w = MPK/r

157. ISO cost is a line showing all combinations of inputs that can be purchased for the:

a. Increasing Cost b. Decreasing Cost C. Same Cost D. None of the given options

158. If the price of labor changes, the Iso cost line becomes steeper due to the change in its slope.

a. TRUE b. FALSE

159. Slope of the ISO cost is given by the ratio of factor prices.

a. TRUE b. FALSE

160. The minimum cost combination is obtained when iso cost line is:

a. Tangent to isoquant b. Lying vertical to isoquant

C. Move parallel to isoquant D. Lying horizontal to isoquant
Lesson # 20
161. Which of the following is correct?

a. In the case of economies of scale, increase in output is greater than the increase in inputs.
b. In the case of economies of scale, decrease in output is greater than the increase in inputs.
C. In case of diseconomies of scale, decrease in output is less than the increase in inputs.
D. None of the given options.

162. Suppose that the price of labor (PL) is Rs.30 and the price of capital (PK) is Rs.40. What is the equation
of the isocost line corresponding to a total cost of Rs.400?

a. PL + 30PK b. 400= 30L + 40K C. 400 = 40(L+K) D. None of the given options

163. If long-run marginal cost (LMC) is less than long-run average cost (LAC), long-run average cost will:

a. Fall b. Rise C. Become zero D. None of the given options

164. If long-run marginal cost (LMC) is greater than long-run average cost (LAC), long-run average cost will:

a. Fall b. Rise C. Become zero D. None of the given options

165. If long-run marginal cost (LMC) is equal to long-run average cost (LAC), long-run average cost will:

a. Fall b. Rise C. Become zero D. None of the given options