LESSON 7 EXAM

1. Production in economics refers to:

Creation of goods only

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Creation of both goods and services

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Creation of money

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Creation of demand

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2. The basic factors of production are:

Land, Labour, Capital, and Entrepreneurship

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Land, Labour, Capital, and Money

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Land, Labour, Profit, and Technology

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Land, Capital, Goods, and Services

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3. The short run in production is defined as a period when:

All factors of production are variable

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All factors of production are fixed

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Some factors are fixed, others are variable

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No production takes place

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4. The law of diminishing returns applies in the:

Long run

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Short run

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Market period

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Both short run and long run

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5. Total product is the:

Output per unit of variable input

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Additional output per unit of input

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Overall quantity of output produced

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Output divided by fixed costs

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6. Marginal product is:

Extra output from one additional unit of input

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Total output divided by total input

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Output when all inputs are fixed

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Output from labour only

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7. Average product is calculated as:

Total product ÷ Variable input

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Total product ÷ Fixed input

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Marginal product ÷ Labour

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Total cost ÷ Output

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8. Isoquant curve shows:

Combinations of inputs producing same output

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Cost of production

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Profit level

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Demand curve of output

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9. Returns to scale occur in the:

Short run only

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Long run only

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Market period

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Any time production takes place

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10. Increasing returns to scale means:

Output increases less than inputs

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Output increases more than inputs

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Output and inputs increase at the same rate

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No change in output

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11. Direct costs are:

Costs easily traced to production of specific goods

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Costs not traceable to specific goods

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Overhead costs

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Sunk costs

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12. Which of the following is an example of a direct cost?

Factory rent

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Raw materials

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Salaries of administrative staff

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Electricity for the office

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13. Indirect costs are also known as:

Fixed costs

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Overhead costs

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Variable costs

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Marginal costs

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14. Which of the following is an indirect cost?

Wages of factory workers directly making the product

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Cost of raw materials

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Depreciation of machinery

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Direct labour

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15. In cost accounting, factory rent is classified as:

Direct cost

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Indirect cost

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Variable cost

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Opportunity cost

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16. Direct labour is an example of:

Indirect cost

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Direct cost

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Fixed cost

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Overhead cost

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17. Indirect labour includes:

Machine operators

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Assembly line workers

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Security guards

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Tailors in a garment factory

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18. The cost of office stationery is an example of:

Direct cost

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Indirect cost

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Fixed cost

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Variable cost

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19. Direct material cost is always:

Fixed

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Variable

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Overhead

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Opportunity

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20. Indirect costs are allocated using:

Cost drivers or absorption bases

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Profit margins

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Market prices

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Direct tracing

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21. The cost that does not change with output in the short run is:

Variable cost

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Direct cost

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Fixed cost

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Marginal cost

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22. The slope of the total cost curve gives:

Average cost

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Marginal cost

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Fixed cost

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Variable cost

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23. The long-run average cost curve is usually:

U-shaped

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Downward sloping

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Horizontal

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Upward sloping

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24. Opportunity cost means:

Direct cost of inputs

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Cost of the next best alternative forgone

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Indirect overhead

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Historical cost

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25. Explicit costs are the same as:

Opportunity costs

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Direct, out-of-pocket expenses

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Indirect costs

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Fixed costs only

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26. Implicit costs are:

Out-of-pocket expenses

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Non-monetary, opportunity costs

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Always indirect costs

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Always fixed costs

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27. If marginal cost is below average cost, then:

Average cost is falling

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Average cost is rising

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Average cost is constant

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Total cost is fixed

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28. A production function shows the relationship between:

Cost and revenue

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Inputs and output

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Price and demand

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Profit and loss

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29. Which of these is a short-run decision?

Expanding factory size

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Hiring temporary workers

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Building a new plant

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Changing scale of operation

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30. Fixed cost per unit falls as output rises because:

Fixed cost decreases

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Fixed cost is spread over more units

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Variable cost decreases

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Marginal cost falls

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LESSON 7 EXAM

LESSON 7 EXAM

ola September 22, 2025

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