CUET UG Economics Booster Test 3 - Long Run Costs and Profit -

🚀

CUET UG Economics Booster Test 3 - Long Run Costs and Profit

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Economics Booster Test 3 - Long Run Costs and Profit

1 / 20

QUESTION 1 OF 20

Identify the correct analytical Assertion based on Long Run dynamics:
Assertion: In the long run, a firm is not constrained by any fixed factor when altering its production level.
Reason: A firm in order to produce different levels of output in the long run may vary both the inputs simultaneously.

Answer Review

1 Identify the correct analytical Assertion based on Long Run dynamics:
Assertion: In the long run, a firm is not constrained by any fixed factor when altering its production level.
Reason: A firm in order to produce different levels of output in the long run may vary both the inputs simultaneously.

A Assertion is false, but Reason is true.

B Both Assertion and Reason are true, but Reason is not the correct explanation.

C Assertion is true, but Reason is false.

D Both Assertion and Reason are true, and Reason is the correct explanation.

💡 Short Explanation

�� All factors of production are variable in the long run. �� Firms can vary all inputs simultaneously. �� Therefore, there is no fixed factor constraint.

✅ Correct Answer Explanation

In the long run, every factor of production can be varied. Therefore, the firm is not constrained by any fixed factor while changing its level of output. The Assertion is true because long-run production allows complete flexibility in adjusting all inputs. The Reason is also true because firms can vary labour, capital and other inputs simultaneously to produce different levels of output. This directly explains why no fixed factor exists in the long run. Hence, Option D is correct. Option B is incorrect because the Reason directly explains the Assertion. Option C is incorrect because the Reason is true. Option A is incorrect because both statements are true.

❓ Why Other Options Are Incorrect

�� Option A → Both Assertion and Reason are true.
�� Option B → The Reason correctly explains the Assertion.
�� Option C → The Reason is true according to NCERT.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Check whether both statements are true and whether the Reason logically explains the Assertion.

Final Logic:

Since all inputs become variable in the long run, the Reason correctly explains why there is no fixed factor.

🧠 Memory Trick

"Long Run = No Fixed Factor."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Long Run Variables

2 Complete the analytical statement:
"Because there is no fixed factor in the long run, the concept of Total Fixed Cost (TFC)..."

A becomes the only relevant cost for the firm

B determines the shape of the marginal product curve

C is completely eliminated, making TC coincide with TVC

D increases proportionately with variable cost

💡 Short Explanation

�� There are no fixed factors in the long run. �� Therefore, Total Fixed Cost becomes zero. �� Hence, Total Cost equals Total Variable Cost.

✅ Correct Answer Explanation

Since all factors of production become variable in the long run, Total Fixed Cost (TFC) no longer exists. Therefore, TC = TVC because there are no fixed costs to be added. Hence, Option C is correct. Option A is incorrect because TFC disappears in the long run. Option B is incorrect because TFC does not determine the marginal product curve. Option D is incorrect because TFC does not increase; it is eliminated.

❓ Why Other Options Are Incorrect

�� Option A → TFC is not relevant in the long run.
�� Option B → Marginal Product depends on production, not fixed cost.
�� Option D → TFC becomes zero rather than increasing.

🎯 Strategy

Used

Elimination

Application:

Remove options inconsistent with the definition of long-run production.

Final Logic:

No fixed factors imply no TFC, so TC equals TVC.

🧠 Memory Trick

"No TFC ⇒ TC = TVC."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Long Run Total Cost

3 Choose the correct analytical sequence of long-run costs:
1. All inputs are considered variable.
2. Fixed costs are zero, leading TVC to equal TC.
3. The sum of all marginal costs yields this total cost.

A 1 and 2

B 2 and 3

C 1 and 3

D 1, 2, and 3

💡 Short Explanation

�� All inputs become variable. �� Fixed costs disappear. �� Summing marginal costs gives Total Cost.

✅ Correct Answer Explanation

All three statements correctly describe long-run cost theory. Statement 1: All factors become variable in the long run. Statement 2: Since there are no fixed costs, TC = TVC. Statement 3: Long Run Total Cost can be obtained by summing the marginal costs of all units produced. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

�� Option A → Statement 3 is also correct.
�� Option B → Statement 1 is also correct.
�� Option C → Statement 2 is also correct.

🎯 Strategy

Used

Option Grouping

Application:

Evaluate every statement independently using NCERT concepts.

Final Logic:

All three statements are correct.

🧠 Memory Trick

"Variable Inputs → No TFC → MC Sum = TC."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Long Run Total Cost

4 Arrange the analytical sequence of deriving Long Run Total Cost from Marginal Cost:
1. Observe the long run marginal cost for every discrete unit of output.
2. Sum all marginal costs from the first unit up to the chosen output level.
3. Arrive at the total cost at that level, which coincides with total variable cost.

A 3, 2, 1

B 2, 1, 3

C 1, 2, 3

D 2, 3, 1

💡 Short Explanation

�� Identify LRMC for every unit. �� Add all marginal costs. �� The sum gives Long Run Total Cost.

✅ Correct Answer Explanation

To derive Long Run Total Cost: First, determine the Long Run Marginal Cost for each unit. Next, sum all marginal costs up to the required output. This total equals Long Run Total Cost, which also equals Total Variable Cost because there are no fixed costs. Hence, the correct order is: 1 → 2 → 3 Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

�� Option A → Total Cost cannot be obtained before calculating marginal costs.
�� Option B → Summation cannot occur before identifying marginal costs.
�� Option D → Marginal costs must be observed before obtaining Total Cost.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Arrange the logical procedure for deriving Total Cost.

Final Logic:

Observe MC → Sum MC → Obtain TC.

🧠 Memory Trick

"Observe → Add → Total Cost."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Long Run Total Cost

5 Match the analytical breakdown of the LRAC curve's U-shape to the underlying scale returns:

List I	List II
1. Downward sloping phase	a. Constant Returns to Scale (CRS)
2. Minimum point	b. Increasing Returns to Scale (IRS)
3. Upward rising phase	c. Decreasing Returns to Scale (DRS)

A 1-a, 2-b, 3-c

B 1-b, 2-c, 3-a

C 1-b, 2-a, 3-c

D 1-c, 2-a, 3-b

💡 Short Explanation

�� IRS causes LRAC to fall. �� CRS gives the minimum LRAC. �� DRS causes LRAC to rise.

✅ Correct Answer Explanation

The Long Run Average Cost (LRAC) curve reflects different stages of returns to scale. Downward sloping phase corresponds to Increasing Returns to Scale (IRS) because average cost falls. Minimum point corresponds to Constant Returns to Scale (CRS) where average cost is lowest. Upward rising phase corresponds to Decreasing Returns to Scale (DRS) because average cost increases. Thus: 1 → b 2 → a 3 → c Hence, Option C is correct.

❓ Why Other Options Are Incorrect

�� Option A → Incorrectly matches the downward phase with CRS.
�� Option B → Incorrectly matches the minimum point with DRS.
�� Option D → Incorrectly matches the downward phase with DRS.

🎯 Strategy

Used

Option Grouping

Application:

Match each segment of the LRAC curve with the appropriate stage of returns to scale.

Final Logic:

IRS → Falling LRAC; CRS → Minimum LRAC; DRS → Rising LRAC.

🧠 Memory Trick

"IRS Falls – CRS Bottom – DRS Rises."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Long Run Average Cost (LRAC) and Returns to Scale

6 Which assertion conceptually links DRS to the shape of the LRAC curve?
Assertion: When DRS operates, the LRAC curve is upward rising as output increases.
Reason: Under DRS, increasing output requires inputs to increase by a larger proportion, causing cost to increase by more than that proportion.

A Both Assertion and Reason are true, but Reason is not the correct explanation.

B Both Assertion and Reason are true, and Reason is the correct explanation.

C Assertion is true, but Reason is false.

D Assertion is false, but Reason is true.

💡 Short Explanation

�� Under DRS, inputs increase more than proportionately. �� Cost increases more rapidly than output. �� Therefore, LRAC rises.

✅ Correct Answer Explanation

The Assertion is true because under Decreasing Returns to Scale (DRS), the Long Run Average Cost (LRAC) curve slopes upward. As production expands, the firm experiences higher average cost. The Reason is also true because under DRS, to increase output by a given proportion, the firm must increase inputs by an even larger proportion. Since input prices are assumed to remain constant, total cost increases by more than the increase in output, causing average cost to rise. Thus, the Reason correctly explains the Assertion. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → The Reason directly explains why LRAC rises under DRS.
�� Option C → The Reason is true according to NCERT.
�� Option D → Both Assertion and Reason are true.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Check whether both statements are true and whether the Reason logically explains the Assertion.

Final Logic:

DRS causes costs to rise faster than output, making LRAC upward sloping.

🧠 Memory Trick

"DRS = More Inputs → Rising LRAC."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Long Run Average Cost (LRAC) and Decreasing Returns to Scale

7 Choose the correct statement(s) regarding the discrete calculation of LRMC:
1. It is the change in total cost per unit of change in output.
2. It assumes a fixed cost is present in the subtraction.
3. It relies on the difference between total costs at q₁ and q₁−1 units.

A 1 and 2

B 2 and 3

C 1 and 3

D 1, 2, and 3

💡 Short Explanation

�� LRMC measures the change in total cost. �� It compares consecutive output levels. �� Fixed cost is absent in the long run.

✅ Correct Answer Explanation

Statement 1 is correct because Long Run Marginal Cost (LRMC) measures the additional cost of producing one more unit of output. Statement 2 is incorrect because in the long run there are no fixed costs; therefore, fixed cost is not part of the LRMC calculation. Statement 3 is correct because LRMC is calculated using the difference between the total cost at q₁ units and q₁−1 units. Hence, Statements 1 and 3 are correct, making Option C the correct answer.

❓ Why Other Options Are Incorrect

�� Option A → Statement 2 is incorrect because fixed costs do not exist in the long run.
�� Option B → Statement 2 is false.
�� Option D → Statement 2 makes the option incorrect.

🎯 Strategy

Used

Option Grouping

Application:

Evaluate each statement individually using the NCERT definition of LRMC.

Final Logic:

Only Statements 1 and 3 correctly describe LRMC.

🧠 Memory Trick

"LRMC = New TC − Old TC (No Fixed Cost)."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Long Run Marginal Cost (LRMC)

8 Match the mathematical representation to its text definition for LRMC calculation:

List I	List II
1. TC at q₁ units	a. The total cost at the previous discrete level of output
2. TC at (q₁ − 1) units	b. The total cost at the new targeted level of output
3. TC(q₁) − TC(q₁ − 1)	c. Long Run Marginal Cost (LRMC)
4. One-unit increase in output (q₁ − 1 → q₁)	d. The change in output used to measure marginal cost

A 1-b, 2-a, 3-c, 4-d

B 1-a, 2-b, 3-d, 4-c

C 1-b, 2-c, 3-a, 4-d

D 1-a, 2-d, 3-c, 4-b

💡 Short Explanation

�� q₁ represents the new output level. �� q₁ − 1 represents the previous output level. �� Their cost difference gives LRMC. �� LRMC measures the cost of producing one additional unit.

✅ Correct Answer Explanation

According to NCERT, Long Run Marginal Cost (LRMC) measures the increase in total cost when output increases by one unit. The formula is: LRMC = TC(q₁) − TC(q₁ − 1) Therefore: • 1 → b (TC at q₁ units is the total cost at the new targeted level of output.) • 2 → a (TC at q₁ − 1 units is the total cost at the previous discrete level of output.) • 3 → c (The difference TC(q₁) − TC(q₁ − 1) represents Long Run Marginal Cost.) • 4 → d (The movement from q₁ − 1 to q₁ is the one-unit increase in output used to measure marginal cost.) Hence, the correct matching is: • 1 → b • 2 → a • 3 → c • 4 → d Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

�� Option B → Reverses the meanings of q₁ and q₁ − 1 and misidentifies the LRMC expression.
�� Option C → Incorrectly matches the LRMC formula and output change.
�� Option D → Incorrectly identifies the current and previous output levels.

🎯 Strategy

Used

Option Grouping

Application:

Match each mathematical expression with its corresponding economic interpretation in the NCERT LRMC formula.

Final Logic:

q₁ → Current Output
q₁ − 1 → Previous Output
Difference → LRMC
One-Unit Increase → Output Change

🧠 Memory Trick

Current − Previous = LRMC

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Long Run Marginal Cost Formula

9 Conceptually, why must LRMC cut LRAC precisely from below?

A Because when average cost transitions from falling to rising, marginal cost must shift from being less than average cost to being greater than average cost.

B Because CRS forces the marginal cost to be strictly zero at the minimum point.

C Because IRS forces LRMC to be higher than LRAC initially.

D Because fixed costs must be covered at the intersection.

💡 Short Explanation

�� LRMC is below LRAC initially. �� LRMC equals LRAC at the minimum point. �� LRMC exceeds LRAC afterwards.

✅ Correct Answer Explanation

The marginal-average relationship states that: When LRMC < LRAC, average cost falls. At the minimum point of LRAC, LRMC equals LRAC. When LRMC > LRAC, average cost rises. Therefore, LRMC must cut LRAC from below exactly at its minimum point. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

�� Option B → CRS does not imply marginal cost becomes zero.
�� Option C → Under IRS, LRMC is below LRAC initially.
�� Option D → Fixed costs do not determine the intersection in the long run.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Recall the standard relationship between marginal cost and average cost.

Final Logic:

MC moves from below AC to above AC at AC's minimum point.

🧠 Memory Trick

"MC Below → Equal → Above."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Relationship Between LRMC and LRAC

10 Arrange the analytical phases of the LRAC and LRMC interplay as output scales up from zero:
1. Marginal cost is greater than the average cost, causing LRAC to rise.
2. Marginal cost is less than average cost, causing LRAC to fall.
3. LRMC cuts the LRAC curve from below at its minimum point.

A 1, 2, 3

B 2, 3, 1

C 3, 1, 2

D 2, 1, 3

💡 Short Explanation

�� Initially LRMC is below LRAC. �� They meet at LRAC's minimum. �� Afterwards LRMC becomes greater than LRAC.

✅ Correct Answer Explanation

As output expands: Stage 1: LRMC is less than LRAC, so LRAC falls. Stage 2: LRMC intersects LRAC from below at its minimum point. Stage 3: LRMC becomes greater than LRAC, causing LRAC to rise. Therefore, the correct order is: 2 → 3 → 1 Hence, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → Begins with the rising stage instead of the falling stage.
�� Option C → Places the intersection before the falling stage.
�� Option D → Omits the intersection before LRMC becomes greater than LRAC.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Arrange the stages of the marginal-average relationship in their logical order.

Final Logic:

Below → Equal → Above.

🧠 Memory Trick

"Less → Meet → Greater."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: LRMC and LRAC Relationship

11 Complete the analytical statement:
"To identify the specific output where a firm's profits are maximum, one must analyze the relationship between inputs and output, and subsequently look at the..."

A fixed costs exclusively

B cost structure of the firm

C instantaneous delays in supply

D total physical product of land

💡 Short Explanation

�� Profit maximization is the firm's objective. �� Cost analysis helps determine the optimal output. �� Profit depends on both revenue and cost.

✅ Correct Answer Explanation

To determine the output level at which profit is maximum, economists first study the relationship between inputs and output (production function) and then analyze the cost structure of the firm. Cost analysis helps identify the output level where the difference between total revenue and total cost is the greatest. Hence, Option B is correct. Option A is incorrect because fixed costs alone cannot determine profit-maximizing output. Option C is incorrect because instantaneous supply is a simplifying assumption, not the basis for profit maximization. Option D is incorrect because total physical product alone does not determine profit.

❓ Why Other Options Are Incorrect

�� Option A → Profit analysis requires total cost, not only fixed cost.
�� Option C → Supply delays are unrelated to identifying maximum profit.
�� Option D → Physical product measures output, not profit.

🎯 Strategy

Used

Elimination

Application:

Remove options unrelated to determining profit-maximizing output.

Final Logic:

The firm's cost structure is essential for identifying maximum profit.

🧠 Memory Trick

"Maximum Profit = Study Cost Structure."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Profit Maximization

12 Identify the correct Assertion concerning input choices:
Assertion: A firm's choice of input combination is dictated by the cost function.
Reason: The firm must choose that combination of inputs which is least expensive, given the prices of factors of production and technology.

A Both Assertion and Reason are true, and Reason is the correct explanation.

B Both Assertion and Reason are true, but Reason is not the correct explanation.

C Assertion is true, but Reason is false.

D Assertion is false, but Reason is true.

💡 Short Explanation

�� Firms minimize production cost. �� Technology and input prices are assumed to be given. �� The reason explains the assertion.

✅ Correct Answer Explanation

The Assertion is true because the cost function represents the least cost of producing each level of output and therefore guides the firm's choice of inputs. The Reason is also true because firms choose the least expensive combination of inputs, assuming given technology and given factor prices. The Reason directly explains why the cost function determines input choice. Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

�� Option B → The Reason directly explains the Assertion.
�� Option C → The Reason is true.
�� Option D → Both statements are true.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Verify whether both statements are true and whether the Reason explains the Assertion.

Final Logic:

Least-cost input choice gives rise to the cost function.

🧠 Memory Trick

"Least Cost → Cost Function."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Cost Function

13 Match the market timeline logic described in the text:

List I	List II
1. Paying for inputs to acquire them	a. Represents earning revenue after production
2. Selling output in the market	b. Represents the cost of production incurred prior to market sale
3. Cost of production	c. Incurred before the output is sold in the market
4. Revenue from sales	d. Earned after the output is sold in the market

A 1-b, 2-a, 3-c, 4-d

B 1-a, 2-b, 3-d, 4-c

C 1-b, 2-d, 3-a, 4-c

D 1-a, 2-c, 3-b, 4-d

💡 Short Explanation

�� Buying inputs creates production cost. �� Selling output generates revenue. �� Cost is incurred before revenue is earned. �� Revenue is earned after the sale of output.

✅ Correct Answer Explanation

According to NCERT, a firm first purchases factors of production such as labour, land and capital. These payments constitute the cost of production and are incurred before the goods are sold. After production is completed, the firm sells the output in the market and earns revenue. Thus, • 1 → b (Paying for inputs represents the cost of production incurred prior to market sale.) • 2 → a (Selling output in the market represents earning revenue after production.) • 3 → c (Cost of production is incurred before the output is sold.) • 4 → d (Revenue is earned after the output is sold in the market.) Hence, the correct matching is: 1 → b 2 → a 3 → c 4 → d Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

�� Option B → Incorrectly interchanges the concepts of cost and revenue.
�� Option C → Incorrectly matches cost and revenue with inappropriate stages.
�� Option D → Incorrectly associates paying for inputs with revenue and selling output with cost.

🎯 Strategy

Used

Option Grouping

Application:

Match each business activity with the correct sequence of production and sale given in NCERT.

Final Logic:

Inputs → Cost → Before Sale
Output Sold → Revenue → After Sale

🧠 Memory Trick

Sell → Revenue → After Sale

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Revenue and Cost

14 Complete the analytical statement regarding differentials:
"The magnitude of a firm's profit is strictly defined as the difference between..."

A fixed cost and variable cost

B marginal product and average product

C the revenue and cost

D long run average cost and short run average cost

💡 Short Explanation

�� Profit equals revenue minus cost. �� Higher revenue or lower cost increases profit. �� This is the standard economic definition.

✅ Correct Answer Explanation

A firm's profit is defined as: Profit = Total Revenue − Total Cost It measures the firm's net earnings after deducting all production costs from the revenue earned through sales. Therefore, Option C is correct. Option A compares two cost components, not profit. Option B relates to production, not profit. Option D compares two cost curves rather than measuring profit.

❓ Why Other Options Are Incorrect

�� Option A → Fixed and variable costs do not define profit.
�� Option B → Marginal and average products are production concepts.
�� Option D → LRAC and SRAC are cost measures, not the profit formula.

🎯 Strategy

Used

Substitution

Application:

Recall the standard formula for economic profit.

Final Logic:

Profit equals Revenue minus Cost.

🧠 Memory Trick

"Profit = Revenue − Cost."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Profit

15 Choose the correct analytical parameters embedded in the "Cost Function":
1. It describes the least cost of producing each level of output.
2. It assumes a given technology.
3. It requires given prices of factors of production.

A 1 and 2

B 2 and 3

C 1 and 3

D 1, 2, and 3

💡 Short Explanation

�� The cost function shows minimum production cost. �� Technology is assumed to remain constant. �� Factor prices are also assumed to be given.

✅ Correct Answer Explanation

The cost function describes the least cost of producing each level of output. It is based on two important assumptions: Technology remains given. Prices of factors of production remain given. Therefore: Statement 1 is correct. Statement 2 is correct. Statement 3 is correct. Hence, Option D is the correct answer.

❓ Why Other Options Are Incorrect

�� Option A → Statement 3 is also correct.
�� Option B → Statement 1 is also correct.
�� Option C → Statement 2 is also correct.

🎯 Strategy

Used

Option Grouping

Application:

Evaluate each statement independently using the NCERT definition of the cost function.

Final Logic:

All three statements correctly describe the cost function.

🧠 Memory Trick

"Cost Function = Least Cost + Technology + Prices."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Cost Function

16 Complete the statement outlining theoretical boundaries:
"The cost function mathematically relies on optimal input combinations, which are strictly determined by the least expensive choice given..."

A the total fixed costs

B prices of factors of production and technology

C the instantaneous model of supply

D elimination of variable factors

💡 Short Explanation

�� Firms minimize production cost. �� Technology and factor prices are assumed to be given. �� These determine the least-cost input combination.

✅ Correct Answer Explanation

The cost function represents the minimum cost of producing each level of output. To determine this minimum cost, the firm selects the least expensive combination of inputs, assuming given prices of factors of production and given technology. Therefore, Option B is correct. Option A is incorrect because fixed costs alone do not determine the cost function. Option C is incorrect because the instantaneous supply assumption is unrelated to input choice. Option D is incorrect because variable factors are not eliminated in the long run.

❓ Why Other Options Are Incorrect

�� Option A → Fixed costs are not the determining factor for optimal input choice.
�� Option C → Supply assumptions do not determine the cost function.
�� Option D → Variable factors remain essential in long-run production.

🎯 Strategy

Used

Elimination

Application:

Remove options unrelated to the determinants of the cost function.

Final Logic:

Only factor prices and technology determine the least-cost input combination.

🧠 Memory Trick

"Least Cost = Prices + Technology."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Cost Function

17 Match the simplifying assumption to its textual definition:

List I	List II
1. Production is instantaneous	a. Production and supply are used synonymously and interchangeably
2. Production and supply	b. No time elapses between input combination and output production
3. Instant availability of output	c. Output becomes available immediately after production
4. Simplifying assumption in the production model	d. Adopted to simplify economic analysis

A 1-b, 2-a, 3-c, 4-d

B 1-a, 2-b, 3-d, 4-c

C 1-b, 2-d, 3-a, 4-c

D 1-a, 2-c, 3-b, 4-d

💡 Short Explanation

�� Production is assumed to occur instantly. �� Production and supply are treated alike. �� Output becomes immediately available after production. �� These assumptions simplify economic analysis.

✅ Correct Answer Explanation

According to NCERT, the following simplifying assumptions are made in the production model: • Production is assumed to be instantaneous, meaning there is no time gap between combining inputs and producing output. Therefore, 1 → b • Production and supply are used synonymously because output is assumed to become available for sale immediately after production. Therefore, 2 → a • Since production is instantaneous, the output becomes available immediately after it is produced. Therefore, 3 → c • These assumptions are adopted to simplify economic analysis. Therefore, 4 → d Hence, the correct matching is: • 1 → b • 2 → a • 3 → c • 4 → d Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

�� Option B → Incorrectly interchanges the meanings of instantaneous production and production–supply equivalence.
�� Option C → Incorrectly matches immediate availability and simplifying assumptions.
�� Option D → Incorrectly associates production with synonymous usage and output availability.

🎯 Strategy

Used

Option Grouping

Application:

Match each simplifying assumption with its corresponding NCERT definition.

Final Logic:

Instant Production → No Time Gap
Production & Supply → Same Meaning
Immediate Output → Available After Production
Assumptions → Simplify Analysis

🧠 Memory Trick

Produce → Supply

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Assumptions of the Production Model

18 Complete the statement reflecting deep model assumptions:
"Because production and supply are used synonymously, the model assumes that output generated is seamlessly equivalent to..."

A fixed capital storage

B the supply available for the market

C decreasing returns to scale

D marginal returns of capital

💡 Short Explanation

�� Production immediately becomes supply. �� No time lag is assumed. �� This simplifies the production model.

✅ Correct Answer Explanation

In the simplified production model, the terms production and supply are used interchangeably because production is assumed to be instantaneous. As soon as goods are produced, they become available for supply in the market. Therefore, Option B is correct. Option A is unrelated to the assumption. Option C refers to returns to scale, not production and supply. Option D concerns factor productivity rather than supply.

❓ Why Other Options Are Incorrect

�� Option A → Fixed capital storage is unrelated to this assumption.
�� Option C → Decreasing Returns to Scale is a separate production concept.
�� Option D → Marginal returns of capital are unrelated to the production-supply assumption.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Recall the NCERT explanation of production and supply being synonymous.

Final Logic:

Immediate production means immediate market supply.

🧠 Memory Trick

"Produce Today = Supply Today."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Production and Supply

📄 Passage

"DRS implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. As a result, cost also increases by more than that proportion. So, as long as DRS operates, the average cost must be rising as the firm increases output."

Based on the passage, if a firm desires a proportional 15% increase in output while operating under DRS, what must dynamically occur to its input requirements?

A Inputs will increase by exactly 15%

B Inputs will decrease proportionately

C Inputs need to be increased by more than 15%

D Inputs will remain strictly constant

💡 Short Explanation

�� DRS requires a larger proportional increase in inputs. �� Output rises less than input usage. �� Average cost rises.

✅ Correct Answer Explanation

Under Decreasing Returns to Scale (DRS), increasing output requires a more than proportional increase in inputs. Therefore, to increase output by 15%, the firm must increase its inputs by more than 15%. Hence, Option C is correct. Option A represents Constant Returns to Scale. Option B contradicts the concept of DRS. Option D is impossible because output cannot increase without additional inputs.

❓ Why Other Options Are Incorrect

�� Option A → Equal proportional increase corresponds to CRS.
�� Option B → Inputs cannot decrease when output is increasing under DRS.
�� Option D → Constant inputs cannot produce higher output under DRS.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Use the information provided directly in the passage.

Final Logic:

DRS ⇒ Inputs increase more than output.

🧠 Memory Trick

"DRS = More Inputs for More Output."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Decreasing Returns to Scale (DRS)

📄 Passage

According to the analytical rules of DRS in the passage, what is the direct mathematical consequence on the average cost?

A The average cost must be rising as output increases

B The average cost remains completely constant

C The average cost decreases proportionally

D The marginal cost drops below the average cost

💡 Short Explanation

�� DRS causes cost to rise faster than output. �� Average cost therefore increases. �� This creates the upward-sloping LRAC curve.

✅ Correct Answer Explanation

The passage clearly states that under Decreasing Returns to Scale (DRS), inputs and costs increase by a greater proportion than output. Consequently, the average cost rises as production expands. Therefore, Option A is correct. Option B describes Constant Returns to Scale. Option C describes Increasing Returns to Scale. Option D is incorrect because when LRAC is rising, marginal cost lies above, not below, average cost.

❓ Why Other Options Are Incorrect

�� Option B → Constant average cost occurs under CRS.
�� Option C → Average cost falls under IRS, not DRS.
�� Option D → In the rising portion of LRAC, LRMC is above LRAC.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Interpret the direct implication stated in the passage.

Final Logic:

DRS causes average cost to rise with output.

🧠 Memory Trick

"DRS = Rising Average Cost."

📚 Class XII – Introductory Microeconomics – Chapter: Production and Costs – Topic: Decreasing Returns to Scale (DRS) and Long Run Average Cost (LRAC)

CUET UG Economics Booster Test 3 - Long Run Costs and Profit

Test Complete!

Answer Review