Theory of Cost

CA. Ashish KediaCA. Ashish Kedia

Theory of Cost

Short Run Total Cost

Cost Function

Long Run Total Cost

Cost Concepts

Economies and Diseconomies of Scale

Accounting & Economic Costs

Outlay & Opportunity Costs

Direct & Indirect Costs

Incremental & Sunk Costs

Historical & Replacement Costs

Private & Social Costs

Fixed & Variable Costs

Cost

Short Run

Variable Cost

Fixed Cost

Long Run

Variable Cost

Scale of Production

Economies of Scale

Internal External

Diseconomies of Scale

Internal External

Technical

Managerial

Financial

Risk Bearing

Commercial

Cheaper Raw Material and Capital

Technological

Skilled Labor

Ancillary Industries

Information

Q1) Average fixed costs :

(a) Remain same at all levels of output (b) Increase as outputincreases

(c) Decreases as output increases (d) Initially increases andthen decreases

Q2) All the curves except __________ are U shaped curves :

(a) Average Fixed Cost Curve (b) Average Variable Cost Curve

(c) Average Cost Curve (d) Marginal Cost Curve

Q3) Normal Profits earned by a firm are included in:

(a) Implicit cost (b) Explicit cost(c) Fixed cost (d) Variable cost

Q4) All the curves except __________ are U shaped curves :

(a) Average Fixed Cost Curve (b) Average Variable Cost Curve

(c) Average Cost Curve (d) Marginal Cost Curve

Q5) Nishant, Tavleen and Manas are confused with the formulafor deriving TC:

• Nishant says: TC = TVC + TFC• Tavleen says: TC = AC × Output• Manas says: TC = ∑MC + TFC Identify who amongst them iscorrect.

(a) Nishant (b) Manas(c) Tavleen (d) All of them

Q6) MC curve intersects AC curve at its __________ point andAVC curve at its point.

(a) Maximum, Minimum (b) Minimum, Minimum(c) Minimum, Maximum (d) Maximum, Maximum

Q5) Nishant, Tavleen and Manas are confused with the formulafor deriving TC:

• Nishant says: TC = TVC + TFC• Tavleen says: TC = AC × Output• Manas says: TC = ∑MC + TFC Identify who amongst them iscorrect.

(a) Nishant (b) Manas(c) Tavleen (d) All of them

Q6) MC curve intersects AC curve at its __________ point andAVC curve at its point.

(a) Maximum, Minimum (b) Minimum, Minimum(c) Minimum, Maximum (d) Maximum, Maximum

Q7) A firm has a variable cost of Rs. 1,000 at five units ofoutput. If fixed costs are Rs. 400, what will be the average totalcost at five units of output?

(a) Rs. 280 (b) Rs. 80(c) Rs. 200 (d) Rs. 1400

Q8)Identify the Curve

a) AVC b) TVC c) AFC d) TC