Jaju’s Professional Academy

CA Foundation – Business Economics (Micro)

Mock Test 7
Time : 1 Hour Marks : 50

1. Supply and stock are _________________________

(a) same things
(b) different
(c) having no comparison
(d) Both (b) and (c)

2. Elasticity of demand and supply are ____concepts.

(a) Relative
(b) Absolute
(c) Both (A) and (B)
(d) Neither (A) and (B)

3. Law of demand is a qualitative concept where as price elasticity of demand is_.

(a) also qualitative concept
(b) Quantitative concept
(c) Quantitative and qualitative concept
(d) Neither qualitative nor quantitative concept

4. Which of the following statements is correct regarding indifference curve?

(a) Two ICs may not intersect each other.
(b) Two ICs may intersect each other
(c) Two ICs are always parallel to each other
(d) None of these

5. The most crucial determinant of demand for an item is_.

(a) Income of consumer
(b) Prices of other related goods
(c) Taste and preference of consumer
(d) It’s own price

6. The price of a piece of jewellery rises, the demand for it may also rise as consumers attach
a ________ to owning and displaying expensive items.
(a) money value
(b) use value
(c) snob value
(d) None of these

7. With reference to Arc elasticity measures the responsiveness of demand ____ on the
demand curve.
(a) at one given point
(b) at intercepts on X-axis & Y-axis
(c) between two points
(d) Any of the above
8.

In the above figure, DD1 is the demand curve of a commodity. There are two points on the
demand curve i.e., A and B with (P, Q) as (10, 2) & (8, 3) respectively. If the initial point is
A or initial point is B, the price elasticity of demand will be –
(a) same in both cases by point method of price elasticity of demand
(b) different in both cases by Arc method of price elasticity of demand
(c) same in both cases by Arc method & different by point method of price elasticity of
demand
(d) None of these

9. Goods X and Y being independent goods, the cross price elasticity of demand (ignoring the
sign) between them will be-
(a) 1 (unit elastic)
(b) less than 1
(c) greater than 1
(d) Zero

10. Veblen effect is the function of _____.

(a) Price
(b) Consumption of others
(c) Income
(d) None of the above

11. Condition of equilibrium using utility analysis of demand can be expressed as

(a) MUX/PX = QX
(b) PX QX = MUM
(c) MUX/PX = MUY/PY = MUM
(d) MUX = MUM

12. Law of diminishing marginal rate of substitution is associated with

(a) Marshall
(b) Hicks
(c) Slutsky
(d) Keynes

13. According to principle of diminishing marginal rate of substitution-

a. One commodity must be decreased while other is increased
b. Commodity which is increased has higher marginal significance
c. Commodity which is decreased has higher marginal significance
d. Neither qualitative nor quantitative concept Of these statements:
(a) Only a is correct
(b) Both a and b are correct
 (c) Both a and c are correct
(d) All are correct

14. Which of the following statements is correct regarding property of indifference curve?
(a) Two ICs may intersect each other.
(b) Two ICs may not intersect each other
(c) Two ICs are always parallel to each other
(d) Two ICs may be parallel to each other

15. MU curve will be below X-axis when

(a) MU is zero
(b) TU is falling
(c) MU is negative
(d) Both (B) and (C)

16. A falling MU curve illustrates

(a) The principle of diminishing marginal utility
(b) The principle of diminishing marginal rate of substitution
(c) The principle of equi-marginal utility
(d) Any of the above

17. In the following diagram, consumer’s surplus is shown by-

(a) OPEQ
(b) ODEQ
(c) PDE
(d) None of these

18. In the following diagram, when the price of the commodity decreases from P1 to P2, the
gain in consumer’s surplus is equal to-
 (a) AP1B
(b) AP2C
(c) P1P2CB
(d) BSC

19. ‘Ceteris Paribus’ clause in Law of demand does not mean-

(a) The price of the commodity does not change
(b) The price of substitutes does not change
(c) The income of consumer does not change
(d) The price of complementary goods does not change

20. Assertion (A): In the short run, a producer operates in only II stage of Law of Diminishing
Returns Where average product of variable factor is declining.
Reason (R): In stage I and stage III the marginal product of the fixed and the variable factors
respectively are negative.
(a) is true and (R) is false
(b) Both (A) and (R) are true & (R) is the correct explanation of (A)
(c) Both (A) and (R) are true & (R) is not the correct explanation of (A)
(d) (A) is false and (R) is true

21. In the long run which factor of production is fixed?

(a) Labour
(b) Capital
(c) Building
(d) None of these

22. Cost incurred which has ‘no relevance’ to future planning is called_
(a) Marginal Cost
(b) Sunk Cost
(c) Book Cost
(d) Average Cost

23. Law of diminishing returns to scale is relevant to_

(a) Short period
(b) Long period
(c) Market period
(d) None of these

24. The Cobb-Douglas homogeneous production function given as: Q = L1/2 k1/2 exhibits-
 (a) Constant returns to scale
(b) Decreasing returns to scale
(c) Increasing returns to scale
(d) All of the above at various level of output

25. In second stage of the Law of Variable Proportion-

(a) MP diminishes & AP increases
(b) AP diminishes but MP increases
(c) Both MP& AP diminish
(d) Both MP& AP increase

26. If all inputs are increased in the same proportion, then it is the case of
1. Short run production function
2. Long run production function
3. Law of Variable Proportion
4. Law of Returns to Scale
(a) 1 & 2 only
(b) 2 & 3 only
(c) 1 & 4 only
(d) 2 & 4 only

27. Iso-Quants shown in the above figure exhibits

1. Perfect substitutability of factors
2. Perfect complementarily of factors
3. Fixed proportion production function
4. Variable proportion production function
(a) 1 & 2 only
(b) 1 & 3 only
(c) 3 & 4 only
(d) 2 & 3 only

28. Diminishing returns are due to ________________ and increasing returns are due to
___________
(a) Internal diseconomies, Internal economies
(b) Internal economies, Internal diseconomies
(c) External diseconomies, Internal economies
(d) Internal diseconomies, external economies

29. Assertion (A): An iso-cost line is a straight line.

Reason (R): The market rate of exchange between the two inputs is constant.
(a) is true and (R) is false
(b) Both (A) and (R) are true & (R) is the correct explanation of (A)
(c) Both (A) and (R) are true & (R) is not the correct explanation of (A)
(d) (A) is false and (R) is true

30. Marginal cost is less than the Average Cost when Average Cost falls with
(a) an increase in output
(b) a decrease in output
(c) constant output
 (d) None of these

31. “Returns to Scale” refers to the effect on total output of changes in

(a) a factor
(b) various inputs separately
(c) all the inputs simultaneously
(d) None of these

32. Consider the following statements about the relationship between cost and production-
1. When AP rises, AVC falls
2. When AP reaches at maximum, AVC is minimum
3. When AP falls, AVC rises
Which of the above statements is correct?
(a) 1 & 2
(b) 3 only
(c) 1, 2 & 3
(d) 32 & 3

33. Which one of the following is not a national objective of an enterprise?

(a) To provide fair deal to the employees at different levels.
(b) To remove inequality of opportunities & provide fair opportunity to all to work and to
progress.
(c) To produce according to national priorities.
(d) To help the country become self reliant & avoid dependence on other nations.

34. An enterprise has social objectives as-

(a) It has to make profit from the society.
(b) It lives in society & it cannot grow unless it meets the needs of the society.
(c) It has a separate legal identity.
(d) None of these

35. Human objectives of an enterprise are-

(a) To provide fair deal to the employees at different levels.
(b) To develop new skills and abilities and provide a work climate in which they will grow
mature.
(c) Only (A)
(d) Both (A) and (B)

36. Which of the following is not a problem of an enterprise?

(a) Problem relating to location & size.
(b) Problem of making huge profit.
(c) Problem relating to finance.
(d) Problem relating to organizational structure.

37. After identifying the market, the enterprise has to make decision regarding 4 Ps. Which
one of the following is not one of these 4 Ps.
(a) Promotion
(b) Place
(c) People
 (d) Product

38. Which one of the following is not an assumption of law of variable proportion?
(a) Technology of production remains unchanged.
(b) Only physical inputs & output are considered.
(c) All units of variable factors are different.
(d) The must be some inputs whose quantity is kept fixed.

39. Isoquant word is made up of two words i.e., Iso & Quant. Where quant means quantity or
output then Iso means
(a) Maximum
(b) Equal
(c) Minimum
(d) None of these

40. Isoquant curve is convex to the origin due to diminishing MRTS. If X-axis is labour (L) axis
& Y-axis is Capital (K) axis then MRTS = ?
(a) ∆ L/ ∆ K
(b) ∆ K /∆ L
(c) 1 / ∆ K
(d) None of the above

41. Which one of the following cost curve is rectangular hyperbola in shape?
(a) TFC
(b) MC
(c) AFC
(d) AVC

42. The areas of all rectangles formed by drawing perpendiculars on both axis from different
points on AFC curve are___________
(a) Same
(b) Different
(c) (a) or (b)
(d) can’t be determined

43. The area of a rectangle formed by drawing perpendiculars on both axis from a point on AFC
curve is equal to___________
(a) Total cost
(b) Marginal cost
(c) Average cost
(d) Total fixed cost

44. Which of the following is incorrect formula?

(a) TC = AC × Q
(b) ∑ MC = TC
(c) ∑ MC = TVC
(d) ∑ MC + TFC = TC

45. Which of the following is not a lagging indicator?

 (a) Corporate Profits
(b) Gross Domestic Product
(c) Unemployment
(d) Labour cost per unit of output

46. Barometric price leadership is leadership by;

(a) Dominant firm
(b) Low cost firm
(c) Old, large, experience firm
(d) None of the above

47. If as a result of increase in the price of the commodity total expenditure on it increases,
then which effect is stronger?
(a) Price effect
(b) Quantity effect
(c) Both effect
(d) None of the above

48. If the elasticity of demand is -2.8 then what does it represents?∆

(a) Nature of relation
(b) Extent of relation
(c) Both of the above
(d) None of the above

49. If the Income effect of the price change in stronger, then cross elasticity will be;
(a) Zero
(b) Positive
(c) Negative
(d) None of the above

50. In case of price elasticity of demand ∆q/∆p has ____ sign.

(a) Positive
(b) Negative
(c) Neither (a) nor (b)
(d) None of the above