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CA Foundation Exam  >  CA Foundation Test  >  Business Economics  >  Test: Theory Of Cost- 3 - CA Foundation MCQ

Theory Of Cost- 3 - CA Foundation Business Economics Free MCQ Test


MCQ Practice Test & Solutions: Test: Theory Of Cost- 3 (30 Questions)

You can prepare effectively for CA Foundation Business Economics for CA Foundation with this dedicated MCQ Practice Test (available with solutions) on the important topic of "Test: Theory Of Cost- 3". These 30 questions have been designed by the experts with the latest curriculum of CA Foundation 2026, to help you master the concept.

Test Highlights:

  • - Format: Multiple Choice Questions (MCQ)
  • - Duration: 30 minutes
  • - Number of Questions: 30

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Test: Theory Of Cost- 3 - Question 1
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Which of the following is known as the Envelope Curve?

Test: Theory Of Cost- 3 - Question 2
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A firm producers 10 units of a commodity at an average total cost of Rs. 200 and with a fixed cost of Rs. 500. Find out the component of average variable cost in the total cost:

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Test: Theory Of Cost- 3 - Question 3
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A firm will close down in the short period if its average revenue is less than its:

Test: Theory Of Cost- 3 - Question 4
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The average fixed cost for producing an output of 6 units of a product by a firm is Rs. 30. The same cost for producing an output of 4 units will be Rs. _________.

Detailed Solution: Question 4

AFC = TFC / Q.
Given AFC at Q = 6 is Rs. 30 → TFC = 30 × 6 = Rs. 180. For Q = 4, AFC = 180 / 4 = Rs. 45.

Test: Theory Of Cost- 3 - Question 5
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Long run price is also called by the name of ________.

Test: Theory Of Cost- 3 - Question 6
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Which of the following cost curve will slope downward and does not touch the x-axis?

Test: Theory Of Cost- 3 - Question 7
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Consider the following data 

The Average Variable Cost (AVC) for an output of 4 units will be:-

Detailed Solution: Question 7

Given Data:
Total Cost (TC) at 0 units of output = ₹25 (this is the Fixed Cost (FC)).
Total Cost (TC) at 4 units of output = ₹105.
Steps to Calculate AVC:
Variable Cost (VC):
VC = TC - FC

At 4 units of output:
VC = ₹105 - ₹25 = ₹80

Average Variable Cost (AVC):
AVC = VC ÷ Output

At 4 units of output:
AVC = ₹80 ÷ 4 = ₹20

The Average Variable Cost (AVC) for an output of 4 units is ₹20.

Test: Theory Of Cost- 3 - Question 8
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 Average Revenue Curve is also known as _________.

Test: Theory Of Cost- 3 - Question 9
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Payment made to outsiders for their goods and services are called :

Test: Theory Of Cost- 3 - Question 10
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When AC curve is rising, the MC curve must be ________ to it

Test: Theory Of Cost- 3 - Question 11
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What will be the total fixed cost for the production of three units as per the details given below?

Test: Theory Of Cost- 3 - Question 12
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A firm encountering economies of scale over some range of output will have a:

Test: Theory Of Cost- 3 - Question 13
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 In which of the following cases opportunity cost concept applies?

Test: Theory Of Cost- 3 - Question 14
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Calculate AFC at 2nd unit of output 

Test: Theory Of Cost- 3 - Question 15
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Which statement among below is correct in reference in Average Fixed Cost

Test: Theory Of Cost- 3 - Question 16
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Opportunity cost is : 

Test: Theory Of Cost- 3 - Question 17
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What will be the TVC if we produce 2 units?
Units  0    1    2
TC    20  37  50

Test: Theory Of Cost- 3 - Question 18
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Which curve is never U-shaped?

Test: Theory Of Cost- 3 - Question 19
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External economies accrue due to ________:

Test: Theory Of Cost- 3 - Question 20
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Average Revenue Curve is also known as _________.

Test: Theory Of Cost- 3 - Question 21
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 Which one of the following is correct?

Test: Theory Of Cost- 3 - Question 22
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When shape of average cost curve is upward, marginal cost : 

Test: Theory Of Cost- 3 - Question 23
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Which of the following is known as Envelope curve?

Detailed Solution: Question 23

Option C is correct.

  • Long-Run Average Cost (LAC) is called the envelope curve because it represents the lowest possible average cost for each level of output when a firm can vary all inputs.

  • The LAC is formed as the locus of minima of different Short-Run Average Cost (SAC) curves corresponding to various plant sizes; the LAC touches each SAC at its minimum point.

  • The typical U-shaped form of the LAC reflects economies of scale at lower outputs and diseconomies of scale at higher outputs.

  • The other options are not envelope curves: MC is the marginal cost curve, AFC (average fixed cost) continuously falls as output rises, and TFC (total fixed cost) is constant with respect to output; none of these envelop the short-run average cost curves.

Test: Theory Of Cost- 3 - Question 24
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Payment made to outsiders for their goods and services are called :

Test: Theory Of Cost- 3 - Question 25
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 Long run price is also called by the name of ________.

Test: Theory Of Cost- 3 - Question 26
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 AFC curve is: 

Detailed Solution: Question 26

The average fixed costs AFC curve is downward sloping because fixed costs are distributed over a larger volume when the quantity produced increases. AFC is equal to the vertical difference between ATC and AVC. Variable returns to scale explains why the other cost curves are U-shaped.

Test: Theory Of Cost- 3 - Question 27
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A firm’s average fixed cost is Rs. 40 at 12 units. What will be the average fixed cost at 8 units:

Test: Theory Of Cost- 3 - Question 28
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Which of the following cost curves is never ‘U’ shaped?

Test: Theory Of Cost- 3 - Question 29
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 Calculate total cost of 4 units:

Test: Theory Of Cost- 3 - Question 30
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Which of the following cost curves is never ‘U’ shaped?

Detailed Solution: Question 30

Average fixed cost curve is never U-shaped. The average fixed costs AFC curve is downward sloping because fixed costs are distributed over a larger volume when the quantity produced increases.

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About this CA Foundation Practice Test

This test contains 30 MCQs on Theory Of Cost- 3 with detailed solutions for each question. It is part of the Business Economics for CA Foundation course on EduRev, designed to align with the current CA Foundation syllabus. Each solution explains not just the correct answer but also gives you an understanding of the topic — not just to attempt the question but also help you prepare for the exam with practice.

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