Business Economics Sample Paper Series - II | Mock Tests & Past Year Papers for CA Foundation PDF Download

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FOUNDATION COURSE 
MOCK TEST PAPER 2 
PAPER – 4: PART I : BUSINESS ECONOMICS 
        Max. Marks : 60 
QUESTIONS 
1.  In the long run under which competition a firm may earn super normal profits? 
(a)  Monopolistic competition 
(b)  Perfect competition 
(c)  Oligopoly 
(d)  Monopoly 
2.  In Law of negative returns (Third stage of Law of variable proportions) 
(a)  Total Product declines, MP is positive 
(b)  Total Product declines, MP is Zero 
(c)  Total Product declines, MP is negative 
(d)  Total Product in constant, MP is constant 
3.  Supply of a good and its price have 
(a)  Negative relationship 
(b)  Inverse relationship 
(c)  No relationship 
(d)  Positive relationship 
4.  If firm’s average cost curve is falling then marginal curve must be: 
(a)  Falling 
(b)  Rising 
(c)  Below average cost curve 
(d)  None of the above 
5.   An expansion in the supply of a good is caused by a: 
(a)  Rise in the price of good 
(b)  Fall in the prices of other goods 
(c)  Fall in the prices of factors of production 
(d)  All of the above 
 
© The Institute of Chartered Accountants of India
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1 
 
FOUNDATION COURSE 
MOCK TEST PAPER 2 
PAPER – 4: PART I : BUSINESS ECONOMICS 
        Max. Marks : 60 
QUESTIONS 
1.  In the long run under which competition a firm may earn super normal profits? 
(a)  Monopolistic competition 
(b)  Perfect competition 
(c)  Oligopoly 
(d)  Monopoly 
2.  In Law of negative returns (Third stage of Law of variable proportions) 
(a)  Total Product declines, MP is positive 
(b)  Total Product declines, MP is Zero 
(c)  Total Product declines, MP is negative 
(d)  Total Product in constant, MP is constant 
3.  Supply of a good and its price have 
(a)  Negative relationship 
(b)  Inverse relationship 
(c)  No relationship 
(d)  Positive relationship 
4.  If firm’s average cost curve is falling then marginal curve must be: 
(a)  Falling 
(b)  Rising 
(c)  Below average cost curve 
(d)  None of the above 
5.   An expansion in the supply of a good is caused by a: 
(a)  Rise in the price of good 
(b)  Fall in the prices of other goods 
(c)  Fall in the prices of factors of production 
(d)  All of the above 
 
© The Institute of Chartered Accountants of India
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6.  Which of the following has the lowest price elasticity of supply? 
(a)  Luxury 
(b)  Necessities 
(c)  Salt 
(d)  Perishable goods 
7. In Economics, the central economic problem means: 
(a)  Output is restricted to the limited availability of resources 
(b)  Consumers do not have as much money as they would wish 
(c)  There will always be certain level of unemployment  
(d)  Resources are not always allocated in an optimum way 
8.  The law of scarcity 
(a)  Does not apply to rich, developed countries 
(b)  Does not apply to poor, under developed countries 
(c)  Implies only to socialist economies. 
(d)  Implies that all consumer wants will never be completely satisfied. 
9.   For the prices- taking firm: 
(a)  Marginal revenue is less than price 
(b)  Marginal revenue is equal to price 
(c)  Marginal revenue is greater than price 
(d)  The relationship between marginal revenue and price is indeterminate 
10.  A monopolist is able to maximize his profits when: 
(a)  His output is maximum 
(b)  He charges high price 
(c)  His average cost is minimum 
(d)  His marginal cost is equal to marginal revenue 
11.  In Imperfect competition: 
(a)  Excess capacity always exists 
(b)  Excess capacity never exists 
(c)  Excess capacity may or may not exist 
(d)  None of the above 
12.  Product differentiation is the most important feature of: 
(a)  Monopolistic Competition 
© The Institute of Chartered Accountants of India
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1 
 
FOUNDATION COURSE 
MOCK TEST PAPER 2 
PAPER – 4: PART I : BUSINESS ECONOMICS 
        Max. Marks : 60 
QUESTIONS 
1.  In the long run under which competition a firm may earn super normal profits? 
(a)  Monopolistic competition 
(b)  Perfect competition 
(c)  Oligopoly 
(d)  Monopoly 
2.  In Law of negative returns (Third stage of Law of variable proportions) 
(a)  Total Product declines, MP is positive 
(b)  Total Product declines, MP is Zero 
(c)  Total Product declines, MP is negative 
(d)  Total Product in constant, MP is constant 
3.  Supply of a good and its price have 
(a)  Negative relationship 
(b)  Inverse relationship 
(c)  No relationship 
(d)  Positive relationship 
4.  If firm’s average cost curve is falling then marginal curve must be: 
(a)  Falling 
(b)  Rising 
(c)  Below average cost curve 
(d)  None of the above 
5.   An expansion in the supply of a good is caused by a: 
(a)  Rise in the price of good 
(b)  Fall in the prices of other goods 
(c)  Fall in the prices of factors of production 
(d)  All of the above 
 
© The Institute of Chartered Accountants of India
2 
6.  Which of the following has the lowest price elasticity of supply? 
(a)  Luxury 
(b)  Necessities 
(c)  Salt 
(d)  Perishable goods 
7. In Economics, the central economic problem means: 
(a)  Output is restricted to the limited availability of resources 
(b)  Consumers do not have as much money as they would wish 
(c)  There will always be certain level of unemployment  
(d)  Resources are not always allocated in an optimum way 
8.  The law of scarcity 
(a)  Does not apply to rich, developed countries 
(b)  Does not apply to poor, under developed countries 
(c)  Implies only to socialist economies. 
(d)  Implies that all consumer wants will never be completely satisfied. 
9.   For the prices- taking firm: 
(a)  Marginal revenue is less than price 
(b)  Marginal revenue is equal to price 
(c)  Marginal revenue is greater than price 
(d)  The relationship between marginal revenue and price is indeterminate 
10.  A monopolist is able to maximize his profits when: 
(a)  His output is maximum 
(b)  He charges high price 
(c)  His average cost is minimum 
(d)  His marginal cost is equal to marginal revenue 
11.  In Imperfect competition: 
(a)  Excess capacity always exists 
(b)  Excess capacity never exists 
(c)  Excess capacity may or may not exist 
(d)  None of the above 
12.  Product differentiation is the most important feature of: 
(a)  Monopolistic Competition 
© The Institute of Chartered Accountants of India
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(b)  Monopoly 
(c)  Oligopoly 
(d)  Perfect Competition 
13.  Relationship between AR, MR and Price elasticity of demand is 
(a)  MR = AR + [e-1/e] 
(b)  MR = AR × [e-1/e] 
(c)  AR = MR × [e-1/e] 
(d)  MR = AR × [e/e – 1] 
14.  In a perfectly competitive firm, MC curve above AVC is the _____ Curve of the firm 
(a)  Average cost 
(b)  Marginal revenue 
(c)  Demand 
(d)  Supply 
15.  Questions like what should be the level of national income, what should be the wage rate fall within the 
scope of: 
(a)  Positive Science 
(b)  Normative Science 
(c)  Both (a) and (b) 
(d)  None of the above 
16.  Which of the following is not one of the features of capitalist economy? 
(a)  Right of private property 
(b)  Freedom of choice by the consumers 
(c)  No profit, No Loss motive 
(d)  Competition 
17.  Which is not the assumption of Indifference curve Analysis? 
(a)  The consumer is rational and possesses full information about all the aspects of economic environment 
(b)  The consumer is not capable of ranking all combinations 
(c)  If consumer prefers combination A to B, and B to C, then he must prefer combination A to C 
(d)  If combination A has more commodities than combination B, then A must be preferred to B. 
18.  The horizontal demand curve parallel to x-axis implies that the elasticity of demand is  
(a)  Zero 
(b)  Infinite 
© The Institute of Chartered Accountants of India
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1 
 
FOUNDATION COURSE 
MOCK TEST PAPER 2 
PAPER – 4: PART I : BUSINESS ECONOMICS 
        Max. Marks : 60 
QUESTIONS 
1.  In the long run under which competition a firm may earn super normal profits? 
(a)  Monopolistic competition 
(b)  Perfect competition 
(c)  Oligopoly 
(d)  Monopoly 
2.  In Law of negative returns (Third stage of Law of variable proportions) 
(a)  Total Product declines, MP is positive 
(b)  Total Product declines, MP is Zero 
(c)  Total Product declines, MP is negative 
(d)  Total Product in constant, MP is constant 
3.  Supply of a good and its price have 
(a)  Negative relationship 
(b)  Inverse relationship 
(c)  No relationship 
(d)  Positive relationship 
4.  If firm’s average cost curve is falling then marginal curve must be: 
(a)  Falling 
(b)  Rising 
(c)  Below average cost curve 
(d)  None of the above 
5.   An expansion in the supply of a good is caused by a: 
(a)  Rise in the price of good 
(b)  Fall in the prices of other goods 
(c)  Fall in the prices of factors of production 
(d)  All of the above 
 
© The Institute of Chartered Accountants of India
2 
6.  Which of the following has the lowest price elasticity of supply? 
(a)  Luxury 
(b)  Necessities 
(c)  Salt 
(d)  Perishable goods 
7. In Economics, the central economic problem means: 
(a)  Output is restricted to the limited availability of resources 
(b)  Consumers do not have as much money as they would wish 
(c)  There will always be certain level of unemployment  
(d)  Resources are not always allocated in an optimum way 
8.  The law of scarcity 
(a)  Does not apply to rich, developed countries 
(b)  Does not apply to poor, under developed countries 
(c)  Implies only to socialist economies. 
(d)  Implies that all consumer wants will never be completely satisfied. 
9.   For the prices- taking firm: 
(a)  Marginal revenue is less than price 
(b)  Marginal revenue is equal to price 
(c)  Marginal revenue is greater than price 
(d)  The relationship between marginal revenue and price is indeterminate 
10.  A monopolist is able to maximize his profits when: 
(a)  His output is maximum 
(b)  He charges high price 
(c)  His average cost is minimum 
(d)  His marginal cost is equal to marginal revenue 
11.  In Imperfect competition: 
(a)  Excess capacity always exists 
(b)  Excess capacity never exists 
(c)  Excess capacity may or may not exist 
(d)  None of the above 
12.  Product differentiation is the most important feature of: 
(a)  Monopolistic Competition 
© The Institute of Chartered Accountants of India
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(b)  Monopoly 
(c)  Oligopoly 
(d)  Perfect Competition 
13.  Relationship between AR, MR and Price elasticity of demand is 
(a)  MR = AR + [e-1/e] 
(b)  MR = AR × [e-1/e] 
(c)  AR = MR × [e-1/e] 
(d)  MR = AR × [e/e – 1] 
14.  In a perfectly competitive firm, MC curve above AVC is the _____ Curve of the firm 
(a)  Average cost 
(b)  Marginal revenue 
(c)  Demand 
(d)  Supply 
15.  Questions like what should be the level of national income, what should be the wage rate fall within the 
scope of: 
(a)  Positive Science 
(b)  Normative Science 
(c)  Both (a) and (b) 
(d)  None of the above 
16.  Which of the following is not one of the features of capitalist economy? 
(a)  Right of private property 
(b)  Freedom of choice by the consumers 
(c)  No profit, No Loss motive 
(d)  Competition 
17.  Which is not the assumption of Indifference curve Analysis? 
(a)  The consumer is rational and possesses full information about all the aspects of economic environment 
(b)  The consumer is not capable of ranking all combinations 
(c)  If consumer prefers combination A to B, and B to C, then he must prefer combination A to C 
(d)  If combination A has more commodities than combination B, then A must be preferred to B. 
18.  The horizontal demand curve parallel to x-axis implies that the elasticity of demand is  
(a)  Zero 
(b)  Infinite 
© The Institute of Chartered Accountants of India
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(c)  Equal to one 
(d)  Greater than zero but less than infinity 
19.  When is TP maximum 
(a)  When AP becomes Zero 
(b)  When MP becomes Zero 
(c) At the intersecting point of AP and MP 
(d)  When MP is highest 
20.  Variable cost includes the cost of 
(a)  Buying land and building 
(b)  Hire charges of machinery 
(c)  Insurance premium 
(d)  Material bought 
21.  Which of the following is correct? 
(a)  Marginal cost is always less than the average cost. 
(b)  Marginal cost is always more than the average cost. 
(c)  Marginal cost is always equal to the average cost at its minimum point. 
(d)  Marginal cost is always equal to the average cost 
22.  When average cost curve is rising then, marginal cost 
(a)  Must be decreasing 
(b)  Must be above the average cost curve 
(c)  Must be constant 
(d)  Must be equal to average cost 
23.  A firm has variable cost of Rs. 1,000 at 5 units of output. If fixed cost are Rs. 400, what will be the average 
total cost at 5 units of output? 
(a)  380 
(b)  280 
(c)  60 
(d)  400 
24. The vertical difference between TVC and TC is equal to: 
(a)  MC 
(b)  AVC 
(c)  TFC 
© The Institute of Chartered Accountants of India
Page 5


1 
 
FOUNDATION COURSE 
MOCK TEST PAPER 2 
PAPER – 4: PART I : BUSINESS ECONOMICS 
        Max. Marks : 60 
QUESTIONS 
1.  In the long run under which competition a firm may earn super normal profits? 
(a)  Monopolistic competition 
(b)  Perfect competition 
(c)  Oligopoly 
(d)  Monopoly 
2.  In Law of negative returns (Third stage of Law of variable proportions) 
(a)  Total Product declines, MP is positive 
(b)  Total Product declines, MP is Zero 
(c)  Total Product declines, MP is negative 
(d)  Total Product in constant, MP is constant 
3.  Supply of a good and its price have 
(a)  Negative relationship 
(b)  Inverse relationship 
(c)  No relationship 
(d)  Positive relationship 
4.  If firm’s average cost curve is falling then marginal curve must be: 
(a)  Falling 
(b)  Rising 
(c)  Below average cost curve 
(d)  None of the above 
5.   An expansion in the supply of a good is caused by a: 
(a)  Rise in the price of good 
(b)  Fall in the prices of other goods 
(c)  Fall in the prices of factors of production 
(d)  All of the above 
 
© The Institute of Chartered Accountants of India
2 
6.  Which of the following has the lowest price elasticity of supply? 
(a)  Luxury 
(b)  Necessities 
(c)  Salt 
(d)  Perishable goods 
7. In Economics, the central economic problem means: 
(a)  Output is restricted to the limited availability of resources 
(b)  Consumers do not have as much money as they would wish 
(c)  There will always be certain level of unemployment  
(d)  Resources are not always allocated in an optimum way 
8.  The law of scarcity 
(a)  Does not apply to rich, developed countries 
(b)  Does not apply to poor, under developed countries 
(c)  Implies only to socialist economies. 
(d)  Implies that all consumer wants will never be completely satisfied. 
9.   For the prices- taking firm: 
(a)  Marginal revenue is less than price 
(b)  Marginal revenue is equal to price 
(c)  Marginal revenue is greater than price 
(d)  The relationship between marginal revenue and price is indeterminate 
10.  A monopolist is able to maximize his profits when: 
(a)  His output is maximum 
(b)  He charges high price 
(c)  His average cost is minimum 
(d)  His marginal cost is equal to marginal revenue 
11.  In Imperfect competition: 
(a)  Excess capacity always exists 
(b)  Excess capacity never exists 
(c)  Excess capacity may or may not exist 
(d)  None of the above 
12.  Product differentiation is the most important feature of: 
(a)  Monopolistic Competition 
© The Institute of Chartered Accountants of India
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(b)  Monopoly 
(c)  Oligopoly 
(d)  Perfect Competition 
13.  Relationship between AR, MR and Price elasticity of demand is 
(a)  MR = AR + [e-1/e] 
(b)  MR = AR × [e-1/e] 
(c)  AR = MR × [e-1/e] 
(d)  MR = AR × [e/e – 1] 
14.  In a perfectly competitive firm, MC curve above AVC is the _____ Curve of the firm 
(a)  Average cost 
(b)  Marginal revenue 
(c)  Demand 
(d)  Supply 
15.  Questions like what should be the level of national income, what should be the wage rate fall within the 
scope of: 
(a)  Positive Science 
(b)  Normative Science 
(c)  Both (a) and (b) 
(d)  None of the above 
16.  Which of the following is not one of the features of capitalist economy? 
(a)  Right of private property 
(b)  Freedom of choice by the consumers 
(c)  No profit, No Loss motive 
(d)  Competition 
17.  Which is not the assumption of Indifference curve Analysis? 
(a)  The consumer is rational and possesses full information about all the aspects of economic environment 
(b)  The consumer is not capable of ranking all combinations 
(c)  If consumer prefers combination A to B, and B to C, then he must prefer combination A to C 
(d)  If combination A has more commodities than combination B, then A must be preferred to B. 
18.  The horizontal demand curve parallel to x-axis implies that the elasticity of demand is  
(a)  Zero 
(b)  Infinite 
© The Institute of Chartered Accountants of India
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(c)  Equal to one 
(d)  Greater than zero but less than infinity 
19.  When is TP maximum 
(a)  When AP becomes Zero 
(b)  When MP becomes Zero 
(c) At the intersecting point of AP and MP 
(d)  When MP is highest 
20.  Variable cost includes the cost of 
(a)  Buying land and building 
(b)  Hire charges of machinery 
(c)  Insurance premium 
(d)  Material bought 
21.  Which of the following is correct? 
(a)  Marginal cost is always less than the average cost. 
(b)  Marginal cost is always more than the average cost. 
(c)  Marginal cost is always equal to the average cost at its minimum point. 
(d)  Marginal cost is always equal to the average cost 
22.  When average cost curve is rising then, marginal cost 
(a)  Must be decreasing 
(b)  Must be above the average cost curve 
(c)  Must be constant 
(d)  Must be equal to average cost 
23.  A firm has variable cost of Rs. 1,000 at 5 units of output. If fixed cost are Rs. 400, what will be the average 
total cost at 5 units of output? 
(a)  380 
(b)  280 
(c)  60 
(d)  400 
24. The vertical difference between TVC and TC is equal to: 
(a)  MC 
(b)  AVC 
(c)  TFC 
© The Institute of Chartered Accountants of India
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(d)  None of the above 
25.  The consumer is in equilibrium when: 
(a)  When marginal utility is constant 
(b)  When marginal utility is greater than price of the good 
(c)  When marginal utility is less than price of the good 
(d)  When marginal utility is equal to price of the good 
26.  Capital is a : 
(a)  Stock concept 
(b)  Flow Concept 
(c)  Both (a) and (b) 
(d)  None of the above 
27.  Which is not the function of an entrepreneur? 
(a)  Initiating a business enterprise and resource co-ordination 
(b)  Risk bearing or uncertainty bearing 
(c)  Innovation 
(d)  Mobilisation of savings 
28. A higher indifference curve shows: 
(a)  A higher level of satisfaction 
(b)  A higher level of production 
(c)  A higher level of income 
(d)  None of the above 
29.  In case of an inferior good the income elasticity of demand is: 
(a)   Zero 
(b)  Positive 
(c)  Negative 
(d)  None of the above 
30.  When quantity demanded changes by larger percentage than does price, elasticity is termed as: 
(a)  Inelastic 
(b)  Elastic 
(c)  Perfectly Elastic 
(d) Perfectly Inelastic 
 
© The Institute of Chartered Accountants of India