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Laws of returns - returns to a factor and returns to scale - class-XII

Description: laws of returns - returns to a factor and returns to scale
Number of Questions: 39
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Tags: production production and costs laws of returns - returns to a factor and returns to scale economics producer behaviour and supply production function production analysis
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In the long run production function all inputs are fixed.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. True

  2. False

Show answer
Correct Option: B

In the long run there is enough time for the firm to cover its losses and earn normal profits. This is because in the long run, all inputs are __________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. identical

  2. homogenous

  3. variable

  4. fixed

Show answer
Correct Option: C

The period of time in which the plant capacity can be varied is known as __________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. the short period

  2. the market period

  3. the long period

  4. all of the above.

Show answer
Correct Option: C

In the case of very short period ______ is variable.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. land

  2. capital

  3. labour

  4. none of the above

Show answer
Correct Option: D

In short run when the level of production increases, average fixed cost will____.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. remain same

  2. decrease

  3. increase

  4. all the three possible depending upon the merit of case

Show answer
Correct Option: B
Explanation:
The AFC curve is asymptotic to to both the x and y axis as the fixed cost can never be 0 since fixed cost is positive. It slopes downwards throughout its length from left to right showing continuous fall in average fixed cost with an increase in output. 

In the long run ___________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. all inputs are fixed

  2. all inputs are variable

  3. some inputs are fixed and rest are variable

  4. a few are variable and rest are fixed

Show answer
Correct Option: B
Explanation:

In the long run all inputs are variable as there is enough time for all factors to adjust according to the requirements for achieving least cost output. 

____ refers to that period in which supply of a commodity can be increased or decreased depending upon changed condition of demand. 

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. Very short period

  2. Short period

  3. Long period

  4. Very long period

Show answer
Correct Option: C

Which of these statement is more appropriate for Fixed costs ____________?

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. Fixed cost is fixed only in short run

  2. It is fixed in long run also

  3. It varies with the change in level of output

  4. It is strictly avoidable in short run also

Show answer
Correct Option: A

In the short run with the increase in output ____________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. The fixed cost also increases

  2. Total variable cost increase in totality but total fixed cost remain same

  3. Total variable cost falls along with fixed cost

  4. Average variable cost falls

Show answer
Correct Option: B

Whether a firm will plan for short-run or long-run production depends upon the __________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. nature of demand for its product

  2. availability of inputs

  3. state of technology

  4. all of the above

Show answer
Correct Option: D

In economics, _______ is a period where all factors/inputs are variable.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. long run

  2. short run

  3. very short period

  4. none of above

Show answer
Correct Option: A
Explanation:

In the long run all factors are variable as producers have enough time to organize all factor inputs in the appropriate proportions to achieve the minimum efficient scale.

In economics, ________ is a period where some factor inputs are fixed, while the others are variable.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. long run

  2. short run

  3. very long period

  4. none of the above

Show answer
Correct Option: B
Explanation:

The short run, as economists use the phrase, is characterized by at least one fixed factor of production so the proportion of inputs can be changed, the law of variable proportion will only operate in the short run. It is in the long run all factors are variable as producers have enough time to organize all factor inputs in the appropriate proportions to achieve the minimum efficient scale.

The short run is characterized by ___________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. at least one fixed factor of production and firms neither leaving nor entering the industry

  2. a period where the law of diminishing returns does not hold

  3. no variable input, i.e., all of the factors of production are fixed

  4. all inputs being variable

Show answer
Correct Option: A
Explanation:

The short run, as economists use the phrase, is characterized by at least one fixed factor of production so the proportion of inputs can be changed, the law of variable proportion will only operate in the short run. Firms in perfect competition can make super normal/subnormal profits in the short run as firms are allowed to enter and exit the market only in the long run.

To economists, the main difference between the short run and the long run is that _____________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. in the short run all inputs are fixed, while in the long run all inputs are variable

  2. in the short run the firm varies all of its inputs to find the least-cost combinations of inputs

  3. in the short run, at least one of the firm's inputs levels is fixed.

  4. in the long run, the firm is making a constrained decision about how to use existing plant and equipment efficiently

Show answer
Correct Option: C
Explanation:

The short run, as economists use the phrase, is characterized by at least one fixed factor of production so the proportion of inputs can be changed, the law of variable proportion will only operate in the short run. In the long run all factors are variable as producers have enough time to organize all factor inputs in the appropriate proportions to achieve the minimum efficient scale.

"Law of diminishing returns" or "Law of variable proportion" operate in ___________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. long run

  2. short run

  3. very long period

  4. none of the above

Show answer
Correct Option: B
Explanation:

For the law of diminishing returns or variable proportions to operate, at least one factor needs to be fixed, as only then can factor proportions be changed, this happens in the short run. In the long run all factors are variable and thus it is not possible for the law of diminishing returns or law of variable proportions to operate.

The "law of diminishing returns" applies to _________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. the short run, but not the long run

  2. the long run, but not the short run

  3. both the short run and the long run

  4. neither the short run nor the long run

Show answer
Correct Option: A
Explanation:

For the law of diminishing return to operate at least one factor needs to be fixed, as only then can factor proportions be changed, this happens in the short run. In the long run all factors are variable and thus it is not possible for the law of diminishing returns to operate.

In describing a given production technology, the short run is best described as lasting __________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. upto six months from now

  2. upto five years from now

  3. as long as all inputs are fixed

  4. as long as at least one input is fixed

Show answer
Correct Option: D
Explanation:

Short run does not correspond to a specific time frame, rather is varies by the industry of operation, and sometimes it can even vary between different firms in the same industry. A firm is considered to be in the short run as long as at-least one factor of production is fixed. 

Which of the following statement is true?

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. In short run, some of the factors of production are fixed and other may vary.

  2. In short run, all the factors of production are fixed.

  3. In short run, all the factors of production are variable.

  4. In short run, there are no fixed factors of production.

Show answer
Correct Option: A
Explanation:
Short run does not correspond to a specific time frame, rather is varies by the industry of operation, and sometimes it can even vary between different firms in the same industry. A firm is considered to be in the short run as long as at-least one factor of production is fixed. 

The term ______ is defined as that length of time over which the firm gets an opportunity to vary if need be the quantities of all its inputs.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. short run

  2. long run

  3. very short period

  4. all of the above

Show answer
Correct Option: B
Explanation:
Long run does not correspond to a specific time frame, rather is varies by the industry of operation, and sometimes it can even vary between different firms in the same industry. A firm is considered to be in the long run when it has the opportunity to vary all factors of production.

In the long run production function all inputs are fixed.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. True

  2. False

  3. Partly true

  4. None of the above

Show answer
Correct Option: B
Explanation:

In the long run all factors are variable as the firm has enough time and other resources to vary any of its factors of production.

In the long run _________. 

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. all inputs, such as labour, equipment and offices or factories can be varied, and so total variable cost is equal to total cost since fixed cost is equal to zero

  2. all inputs except labour can be varied, and so total variable cost remains unchanged but fixed cost is equal to zero

  3. all inputs, such as labour, equipment and offices or factories can be varied, and so average fixed cost is lower

  4. All inputs such as labour, equipment and offices or factories can be varied, and so total variable and fixed cost are lower

Show answer
Correct Option: A
Explanation:
In the long run all factors are varied. The proportion of inputs are scaled up or down in order to produce at the minimum efficiency scale (long run minimum average cost). Thus, in the long run the total cost is the total variable cost as there is no fixed cost involved.

Which of the following is an assumption in the Law of Variable Proportions?

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. The Fixed Factor of production is scarce

  2. There are no perfect substitutes for the Fixed Factor

  3. Factors of Production can be used in any proportion

  4. All of the above

Show answer
Correct Option: D

Law of Returns to Scale indicates the responsiveness of total product when all inputs ________________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. Remain same

  2. Are changed drastically

  3. Are changed marginally

  4. Are changed proportionately

Show answer
Correct Option: D

In a small scale rubber plant, factors of production like labour, material and capital are increased by 10% and output increases. It implies that the Firm is experiencing  ________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. Constant Returns to Scale

  2. Decreasing Returns to Scale

  3. Increasing Returns to Scale

  4. Increasing as well as decreasing

Show answer
Correct Option: C

A short-run production function is one which has ___________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. at least one fixed factor

  2. all fixed factors

  3. all variable factors

  4. at least one variable factor

Show answer
Correct Option: A
A firm can quit the industry in the short run.
economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. True

  2. False

Show answer
Correct Option: B
Explanation:

Quitting is not possible in the short run because short run, by definition, is a period of time which is too short for the existing firms to quit the industry or for any new firms to enter the industry. Therefore, a firm can quit the industry only in the long run.

Which of these can be described as implicit cost of production?

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. National rent of own office building

  2. Payment of wages to workmens

  3. Normal profit on capital employed

  4. Interest on loan

Show answer
Correct Option: A

The difference between the least cost output and actual output level is termed as____.

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. Excess capacity

  2. Unbalanced capacity

  3. Balance capacity

  4. Bottleneck capactiy

Show answer
Correct Option: A
Explanation:

The least cost output is the level of optimal efficiency. This is achieved when all factors of production are employed in their most productive form. Thus when the average cost is higher than least cost it signifies the presence of inefficiencies in the economy. and thus the gap is termed as excess capacity as all resources are not employed in the most optimal way.

In which stage of production are the Average Product and Marginal Product decreasing with the Marginal Product above zero (positive)?

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. In the stage of Constant Returns

  2. In the stage of Decreasing Returns

  3. In the stage of Increasing Returns

  4. Both (a) and (c)

Show answer
Correct Option: B

In the stage of Diminishing Returns, Marginal Product (MP)-

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. First increases, reaches a maximum and then decreases

  2. Decreases

  3. Increases

  4. Remains constant

Show answer
Correct Option: B

If Stage I = Increasing Returns, Stage II = Diminishing Returns, and Stage III = Negative Marginal Returns, answer the questions:
A Rational Producer will not operate in Stage I due to the reason that -

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. There is more scope for making the best use of the Fixed Factor

  2. Total Output still shows an increasing trend

  3. Optimal Combination of Fixed and Variable Factors is not yet achieved

  4. All of the above

Show answer
Correct Option: D

In which stage of production would a rational entrepreneur like to operate?

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. Stage 1 where MP is maximum

  2. Stage 2 where both MP and AP are decreasing, but both are positive

  3. Stage 3 where MP is negative

  4. Either Stage 2 or 3

Show answer
Correct Option: B

A Rational Producer intends to work in-

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. Stage of Constant Returns

  2. Stage of Increasing Returns

  3. Stage of Diminishing Returns

  4. Stage of Negative Returns

Show answer
Correct Option: C

You are given the following data:

Factor Output
0 0
1 15
2 35
3 60
4 92
5 140

The above data is an example of:

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. Decreasing returns to scale.

  2. Constant returns to scale.

  3. Increasing returns to scale.

  4. Positive fixed costs.

Show answer
Correct Option: C

If a change in scale inputs leads to a proportional change in the output, it is a case of-

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. Increasing Returns to Scale

  2. Constant Returns to Scale

  3. Diminishing Returns to Scale

  4. Variable Returns to Scale

Show answer
Correct Option: B

If as a result of a 50% increase in all inputs, the output rises by 75%, this is a case of:

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. Increasing Returns to a Factor

  2. Increasing Returns to Scale

  3. Constant Returns to a Factor

  4. Constant Returns to Scale

Show answer
Correct Option: B

In the very beginning of production generally, the Increasing Returns to scale is found because-

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. Input is increased

  2. Plant and Machinery will be new

  3. Production Problems are less

  4. Economies of Scale

Show answer
Correct Option: D

A rational producer will always operate in which stage of law of variable proportion?

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. increasing returns.

  2. diminishing returns.

  3. constant returns.

  4. negative returns.

Show answer
Correct Option: B

Second stage of law of variable proportion ends where __________.

economics laws of returns - returns to a factor and returns to scale total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function

  1. MP is zero

  2. AP is maximum

  3. MP is falling

  4. none of the above

Show answer
Correct Option: A
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