APSET Paper 2 Mock Test - 10 (Commerce) - AP TET MCQ

Production Function 

Production function depicts the technical relationship between physical inputs and physical output.

• The given production function Q = 10 L^0.8K^0.2 is an example of a Cobb-Douglass production function. 
• This production function was given by C.W. Cobb and P.H. Douglas.

The Marginal product of labour (MP_L)

The marginal product of labour is the addition made to total physical product through the employment of an additional unit of labour, given, the quantities of other inputs remain constant.

In mathematical terms, MP_L can be expressed as

MP_L = dQ / dL = Change in output / Change in labour

Marginal product of capital (MP_K)

Marginal product of capital is the addition made to total physical product through the employment of an additional unit of capital, given, the quantities of other inputs remain constant.

In mathematical terms, MP_K can be expressed as - 

MP_K = dQ / dK = Change in output / Change in capital

Important Points Numerical solution

Calculation of Marginal product of labour

 Q = 10 L^0.8K^0.2    (Given)

Taking the first derivative w.r.t. labour, 

MP_L = dQ / dL 

MP_L = 0.8 (10 L^0.8-1)K^0.2

MP_L = 8L^-0.2K^0.2

MP_L = 8K^0.2 / L^0.2

MP_L = 8 (K/L)^0.2

Calculation of marginal product of capital

Taking the first derivative w.r.t. capital,

MP_K = dQ / dK

MP_K = 10 L ^0.8  (0.2 K ^0.2-1)

MP_K = 10 L^0.8 (0.2 K^-0.8)

MP_k = 2 L ^0.8 K^-0.8

MP_K = 2 (L / K)^0.8

Hence, given the production function Q = 10 L^0.8 K^0.2, the marginal product of labour (MP_L) and capital (MP_K) are given by MP^L = 8 (K/L)^0.2 and MP_K = 2 (L / K)^0.8 respectively.

With these objectives in mind, we can state the following six specific functions:

1. It shall facilitate the implementation, administration, and operation of the WTO trade agreements, such as multilateral trade agreements, plurilateral trade agreements.
2. It shall provide a forum for negotiations among its members concerning their multilateral trade relations.
3. It shall administer the ‘Understanding on Rules and Procedures’ so as to handle trade disputes.
4. It shall monitor national trade policies.
5. It shall provide technical assistance and training for members of the developing countries.
6.  It shall cooperate with various international organizations like the IMF and the WB with the aim of achieving greater coherence in global economic policy-making.

The WTO was founded on certain guiding principles—non-discrimination, free trade, open, fair and undistorted competition, etc. In addition, it has special concern for developing countries.

The correct answer is Both A and R are true but R is NOT the correct explanation of A.

Key Points The correct answer is Both A and R are true but R is NOT the correct explanation of A.

• Assertion A states that a stereotyped and male-centered vision discourages some women from participating in business activities that could have a consequence on people who interact with women at the community level.
• This is because women may feel that they are not welcome in business or that they will not be successful because of their gender. They may also feel that they will be discriminated against or that they will not be taken seriously.
• Reason R states that attributions of the society and the different socialization processes relating to men and women may create obstacles for women due to unequal distribution of assets and services.
• This is because women may be socialized to believe that they are not as capable as men in business or that they should not be involved in business. They may also face discrimination in terms of access to resources, such as loans and training.

Additional Information

• However, Reason R is not the correct explanation of Assertion A. The reason is that Assertion A is talking about the discouragement of women from participating in business activities, while Reason R is talking about the obstacles that women face in business.
• A better explanation of Assertion A could be that the stereotyped and male-centered vision leads to the attribution of society that women are not as capable as men in business, which in turn creates obstacles for women in business, such as unequal distribution of assets and services.

The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies. This includes all aspects of buying, selling, and exchanging currencies at current or determined prices. In terms of volume of trading, it is by far the largest market in the world, followed by the Credit market. The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market does not determine the relative values of different currencies but sets the current market price of the value of one currency as demanded against another. The foreign exchange market works through financial institutions, and it operates on several levels.

Money market consists of various financial institutions and dealers, who seek to borrow or loan securities. It is the best source to invest in liquid assets. The money market is an unregulated and informal market and not structured like the capital markets, where things are organised in a formal way.

(a) - (iii), (b) - (i), (c) - (iv), (d) - (ii) is correct.

• Interest rate risk: Systematic risk, also known as market risk, is the risk that is inherent to the entire market, rather than a particular industry sector.
• Financial risk: Unsystematic risk is inherent in a specific company or industry. Unsystematic risk is caused due to internal factors so it can be avoided and controlled.
• APM model: Arbitrage Pricing Model is a Multifactor model based on the idea that ideas return can be predicted using the linear relationship between the asset's expected return and a number of macroeconomic variables that capture systematic risk.
• CAPM model: Capital Asset Pricing Model is the simplest factor model that attempts to explain the return of an individual security or portfolio.

Stakeholders - A stakeholder is a person who has an interest in a business and who has the potential to affect or be impacted by it. The main parties involved in a traditional business are its creditors, employees, customers, and suppliers.

Important PointsCorporate social responsibility -

• Corporate social responsibility (CSR) is a self-policing corporate strategy that enables an organization to be socially accountable to its customers, employees, and stakeholders.
• Corporate social responsibility (CSR) is a company's ongoing commitment to act morally, promote economic growth, and enhance the lives of its employees, their families, the local community, and society as a whole.
• It must fulfil its economic, legal, ethical, and discretionary obligations as a responsible corporate citizen.

The correct answer is Increase in creditors.

Key Points Out of the given options, increase in creditors is not a cash outflow.

Here's why:

• Increase in prepaid expenses: This indicates the payment of cash in advance for future expenses. For example, if you pay insurance premium for the next year in advance, it represents a cash outflow.
• Increase in debtors: This signifies goods or services sold on credit, leading to a receivable for the business. Since no cash is paid out at this point, it does not constitute a cash outflow.
• Increase in stock: This signifies the purchase of inventory, which usually requires payment in cash. Therefore, it represents a cash outflow.
• Increase in creditors: This represents goods or services purchased on credit, where the business owes payment to the supplier. Since no cash is paid out immediately, it does not represent a cash outflow.

Therefore, the correct answer is increase in creditors.

A firm producing a large number of products will follow the pricing strategy known as product line pricing. Product line pricing refers to the practice of reviewing and setting prices for multiple products that a company offers in coordination with one another. This strategy aims to maximize the sales of different products by creating more complementary, rather than competing products.

The correct answer is Olaf Helmer and Norman Dalkey.

Key Points The Delphi method was invented by a team at the RAND Corporation in the 1950s, with Olaf Helmer and Norman Dalkey being the most prominently credited individuals. While Nicholas Rescher also contributed to the early development, Helmer and Dalkey are often referred to as the co-inventors.

It's interesting to note that the name "Delphi" was originally applied as a joke, referencing the ancient Greek oracle at Delphi. However, the name stuck even though the founders, particularly Helmer, weren't entirely fond of it.

Additional InformationProcess:

Panel selection: Assemble a diverse group of experts relevant to the subject matter.
Round 1: Experts anonymously submit individual responses to questionnaires or open-ended prompts.
Feedback and analysis: Facilitation team summarizes responses, highlighting key points, discrepancies, and justifications.
Round 2: Experts receive anonymized feedback and revise their initial responses based on insights from the group.
Iterations: Additional rounds occur until consensus emerges or no significant changes arise.
Outcome: Report summarizing the final group judgement, including statistical measures of agreement and key arguments behind the conclusions.

The correct combination is (a) - (iii), (b) - (iv), (c) - (ii), (d) - (i).

This concept was originated by Paul Mazur. According to him, "Marketing is the delivery of standard of living." Prof. McNair made an important amendment in the definition. According to him, "Marketing if the creation and delivery of standard of living to the society." It is a consumer-oriented concept.

According to Pyle, “Marketing comprises both buying and selling activities.” This definition of marketing consists only of the purchase and sale. It ignores the functions of physical distribution and other auxiliary functions of marketing.

According to Philip Kotler "Marketing is a human activity directed at satisfying needs and wants through an exchange process" (Philip Kotler, 2013). It is clear from this definition that customer is the centre of marketing which begins with the identification of customer needs and wants and ends with his satisfaction.

According to Peter F. Drucker, "Marketing is a process which converts a resource distinct knowledge into a contribution of economic value in the market place. This definition recognizes marketing as a process in which the goods and services having economic value are manufactured and distributed". This presents the social approach to marketing.

Unabsorbed Depreciation is that amount of unutilized depreciation which the assessee will not be able to claim as an expense due to lack of sufficient profit in the P&L Account. Such unabsorbed depreciation could not be set off in the same assessment year, It can be set off against any head of income and the remaining balance can be carried off for any number of periods.

Key-Points

Tax planning:

• Tax planning is a legal activity that not only covers the various aspects of tax filling but also aims at the need of reducing one's tax liability.
• It is a process of analyzing one's financial situation in the most efficient manner.
• It includes planning one's income following the intent of the law, with the help of various exemptions and deductions.
• Tax planning is an art in which there is logical planning of one's financial affairs in such a manner that it benefits the assessee with all eligible provisions of the taxation law.
• It is an honest approach to applying the provisions that come within the framework of taxation law.
• The best ways of saving tax are saving in PPF account, National Savings Certificate, Fixed Deposit, Mutual Funds, and Provident Funds. 

Tax avoidance:

• Tax avoidance is an act of applying legal methods to reduce tax liability.
• It is an act of using a tax regime in a particular territory for an individual's personal benefits to decrease his tax liability.
• Even if tax avoidance is a legal method, it is not advisable as it could be used to one's own advantage to reduce tax liability.
• Tax avoidance looks to the loophole in the law to serve the purpose by finding new ways to avoid the payment that are within the limits of the law.
• It can be done by adjusting accounts in such a manner that there will be no violation of tax rules.
• Tax avoidance is a lawful activity but still, it could come in the category of crime.

Therefore, both statements (A) and (R) are correct.

Additional Information

Tax evasion:

• Tax evasion is an illegal method used to minimize tax liability through fraudulent activities like a deliberate understatement of taxable income or inflating expenses.
• It is done with the motive of showing fewer profits in order to avoid the tax burden.
• It is an unlawful attempt to reduce an assessee's tax burden and is considered a crime for which the assessee could be punished under the law.
• Tax evasion involves illegal practices such as making false statements, hiding relevant documents, not maintaining complete records of the transactions, overstatement of a tax credit, or presenting personal expenses as business expenses. 

The transfer by a company of one or more of its business divisions to another new set up company is called demerger.

The term 'demerger' simply means one company transferring one or more of its business operations into another company. The company that transfers such business operations is known as the “demerged” company, while the company to which the business is transferred is known as the “resulting” company.

The Peter principle is a concept in management theory formulated by Laurence J. Peter and published in 1969. It states that the selection of a candidate for a position is based on the candidate's performance in their current role, rather than on abilities relevant to the intended role. Thus, employees only stop being promoted once they can no longer perform effectively, and "managers rise to the level of their incompetence." In an organizational structure, assessing an employee's potential for a promotion is often based on their performance in the current job. This eventually results in their being promoted to their highest level of competence and potentially then to a role in which they are not competent, referred to as their "level of incompetence". The employee has no chance of further promotion, thus reaching their career's ceiling in an organization.

Total utility is the total satisfaction received from consuming a given total quantity of a good or service, while the marginal utility is the satisfaction gained from consuming another quantity of a good or service. Negative marginal utility is when the consumption of an additional item decreases the total utility.

The correct answer is 1, 2 and 4 only.

Key Points

• The Consumer Protection Act, 2019:
  • The Consumer Protection Act, 2019 (CPA-2019), which has replaced the Consumer Protection Act, 1986, aims to be more holistic and stringent in protecting the interest of the consumers and to establish authorities for timely and effective administration and settlement of the consumers' disputes. To achieve the aforesaid purpose, the CPA-2019 establishes the following:
  • The Central Consumer Protection Authority (CCPA), referred to as the Central Authority. Hence, statement 1 is correct.
  • The Central Consumer Protection Council, at the national, state, and district levels, is referred to as the National, State, and District Commissions. Hence, statement 2 is correct.
  • The Consumer Disputes Redressal Commission, at the national, state, and district levels. Hence, statement 4 is correct.
  • The Consumer Mediation Cell, to be attached to each of the District Commissions and the State Commissions. Hence, statement 3 is incorrect.

Smooth frequency curve can be drawn through various points of the polygon.

The histogram is two dimensional. Bar diagram is one dimensional. Ogives determine and portray the number of proportions of cases.

The correct answer is Hull insurance

Key PointsMarine insurance defined—A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, the losses incidental to marine adventure.

Marine Cargo Insurance : covers loss of or damage to the goods carried in a vessel or aircraft, whether on domestic or international journeys.

Marine Hull Insurance : covers loss of or damage to a vessel or aircraft or its machinery or equipment

Marine Hull Insurance provides coverage for the following risks:

• Damage to the hull of the ship or vessel, including its machinery and equipment
• Damage or loss to the ship due to fire, burglary and/or theft
• Accidental damage to the ship due to earthquake, lightning, etc.
• Damage done to other boats by the insured vessel (third party liability)
• Damage to the vessel during maintenance activity
• World-wide coverage for ocean-going vessels

The subject matter of hull insurance is the vessel or ship. There are many types of designs of ships. Most of them are constructed of steel and welded and are capable of sailing on the sea in ballast in with cargo.

Additional Information

Cargo insurance is essentially a risk management tool that protects the business against financial losses due to lost or damaged cargo. It covers up to the limit of an amount insured and is different from carrier liability.
There are two types of Cargo insurance:

• Land Cargo Insurance
• Marine Cargo Insurance

Freight insurance is an agreement by which insured goods are underwritten (protected) in the event of damages caused by a risk covered in the policy. An insurance invoice is required for customs clearance only when the relevant data does not appear in the commercial invoice.

According to the Indian Marine Insurance Act 1963, a voyage policy is a type of marine insurance policy that provides coverage for losses due to unforeseen risks to cargo during a specific voyage.

In most countries with income taxation, corporate entities are subject to tax on their profits and, in addition, are taxed in the hands of shareholders is known as surcharges.

A surcharge is an additional charge or tax to the tax being already levied. The separate taxation of the incomes of corporations and their shareholders follows the legal principle that corporations and shareholders are distinct entities.

The correct answer is Assertion is false but reason is true.

Key Points

As per the passage, "Target markets are chosen based on their attractiveness, which may be determined by factors like segment size, growth potential, profitability, competitive positioning, and resonance with the organization's objectives and resources."

The correct answer is Both assertion and reason are correct and reason is the correct explanation of the assertion.

Key Points

As per the passage, "Lastly, 'Positioning' is the strategic process that aligns the business’s offering with the needs of the targeted segments. It is achieved by developing a unique selling proposition (USP) that differentiates the product in the marketplace."

The correct answer is Selecting segments to focus marketing efforts.

Key Points

As per the passage, "The next stage is 'Targeting,' where the entity selects one or more segments to focus its marketing efforts." 

Companies shall follow Ind AS either Voluntarily or Mandatorily. Once a company follows Ind AS, either mandatorily or voluntarily, it can't revert back to the old method of Accounting.

Mandatory applicability of IND AS to all companies from 1st April 2016, provided: It is a listed or unlisted company. Its Net worth is greater than or equal to Rs. 500 crore.

According to the given passage,

A tax is an amount of money that governments require to be paid to support the government. Taxes have been around for a long time. In fact, there is a very old saying that in this world nothing is certain but death and taxes.

Thus, we can conclude that, taxes are the money that goes to support the government.