CUET UG Booster Economics 4 Test (D4) -

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CUET UG Booster Economics 4 Test (D4)

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Booster Economics 4 Test (D4)

1 / 20

QUESTION 1 OF 20

Consider the definition of a firm's supply. Which of the following factors are explicitly kept unchanged when constructing and defining the supply curve?
I. Market price
II. Technology
III. Prices of factors of production

Answer Review

1 Consider the definition of a firm's supply. Which of the following factors are explicitly kept unchanged when constructing and defining the supply curve?
I. Market price
II. Technology
III. Prices of factors of production

A I and II

B I and III

C II and III

D I, II and III

💡 Short Explanation

Supply is defined by varying market price. Technology is assumed to remain constant. Prices of factors of production are also held constant.

✅ Correct Answer Explanation

While constructing a firm's supply curve, market price is the variable that changes, whereas technology and prices of factors of production are assumed to remain unchanged (ceteris paribus). Therefore: Statement II is correct. Statement III is correct. Statement I is incorrect because market price is intentionally varied to observe changes in quantity supplied. Hence, Option C is correct. Option A is incorrect because market price is not kept constant. Option B is incorrect because it incorrectly includes market price. Option D is incorrect because all three are not held constant.

❓ Why Other Options Are Incorrect

Option A → I and II

Market price changes while constructing the supply curve.

Option B → I and III

Statement I is incorrect because price is the independent variable.

Option D → I, II and III

Price is not held constant in a supply curve.

🎯 Strategy

Used

Elimination

Application:

Identify the factor that is intentionally varied (market price) and eliminate all options containing Statement I.

Final Logic:

Only technology and factor prices remain constant.

🧠 Memory Trick

Supply: Change Price, Keep Technology Constant

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Meaning of Supply

2 A supply schedule differs from a supply curve primarily in that:

A the schedule is a tabular representation, while the curve is graphical.

B the schedule accounts for changing technology, while the curve does not.

C the schedule applies only to the long run.

D the schedule measures elasticity directly.

💡 Short Explanation

A supply schedule presents numerical data. A supply curve is the graphical form of the schedule. Both represent the same supply relationship.

✅ Correct Answer Explanation

A supply schedule lists quantities supplied at various prices in the form of a table, whereas a supply curve is the graphical representation of the same information. Therefore, Option A is correct. Option B is incorrect because both assume technology remains constant. Option C is incorrect because supply schedules apply in both the short run and long run. Option D is incorrect because elasticity requires separate calculation.

❓ Why Other Options Are Incorrect

Option B → the schedule accounts for changing technology, while the curve does not.

Both assume technology remains unchanged.

Option C → the schedule applies only to the long run.

A supply schedule is not restricted by time period.

Option D → the schedule measures elasticity directly.

Elasticity is calculated separately.

🎯 Strategy

Used

Odd One Out

Application:

Identify the option describing the fundamental difference between numerical and graphical representations.

Final Logic:

Schedule = Table; Curve = Graph.

🧠 Memory Trick

Schedule = Sheet, Curve = Graph

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Supply Schedule and Supply Curve

3 Match List I with List II for the structural elements of a firm's supply curve graph:

List I	List II
1. X-axis represents	a. Market price
2. Y-axis represents	b. Levels of output
3. Curve slope (generally)	c. Upward rising
4. Zero output implies	d. Curve lies on the y-axis

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

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

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

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

💡 Short Explanation

X-axis measures output. Y-axis measures market price. Supply curves generally slope upward. Zero output is represented along the y-axis.

✅ Correct Answer Explanation

The correct matching is: 1 → b: X-axis represents output. 2 → a: Y-axis represents market price. 3 → c: The supply curve generally slopes upward. 4 → d: Zero output lies on the y-axis. Thus, Option C is correct. The remaining options mismatch the graph's basic structural elements.

❓ Why Other Options Are Incorrect

Option A → Reverses the X-axis and Y-axis variables.
Option B → Incorrectly matches graph components.
Option D → Multiple axis and slope pairings are incorrect.

🎯 Strategy

Used

Option Grouping

Application:

First identify the graph axes, then match the slope and zero-output region.

Final Logic:

X = Output, Y = Price, Supply Slopes Upward.

🧠 Memory Trick

(Price on Y-axis, Quantity on X-axis)

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Supply Curve

4 Assuming a typical upward-sloping marginal cost curve strictly above the minimum average variable cost, what is the exact nature of the price-output relation for a perfectly competitive firm?

A Output decreases as price increases.

B Output remains constant regardless of price fluctuations.

C Output increases only if fixed costs significantly decrease.

D Output increases as market price increases.

💡 Short Explanation

Firms equate Price with Marginal Cost. A higher market price leads to a higher equilibrium output. The supply curve is upward sloping.

✅ Correct Answer Explanation

In perfect competition, firms maximise profit by producing where Price = Marginal Cost on the rising part of the MC curve. As market price rises, this equilibrium occurs at a larger quantity of output. Therefore, Option D is correct. Option A is incorrect because output does not decrease when price rises. Option B is incorrect because output changes with price. Option C is incorrect because fixed costs do not directly determine supply.

❓ Why Other Options Are Incorrect

Option A → Output decreases as price increases.

This is opposite to the law of supply.

Option B → Output remains constant regardless of price fluctuations.

Supply changes with price.

Option C → Output increases only if fixed costs significantly decrease.

Fixed costs do not affect short-run supply decisions.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Recall the positive relationship between market price and quantity supplied.

Final Logic:

Higher Price ⇒ Higher Output.

🧠 Memory Trick

Price ↑ = Supply ↑

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Price–Output Relationship

5 Assertion (A): The short run supply curve is absolutely identical to the entire SMC curve.
Reason (R): Any factor that affects a firm's marginal cost curve is a determinant of its supply curve.

A Both false

B A true, R false

C Both true, R explains A

D A false, R true

💡 Short Explanation

The short-run supply curve is not the entire SMC curve. Only the rising part above minimum AVC forms the supply curve. Factors affecting the MC curve also affect the firm's supply.

✅ Correct Answer Explanation

The Assertion is false because the firm's short-run supply curve includes only the rising portion of the SMC curve above the minimum AVC. The falling portion below minimum AVC is excluded since it does not satisfy the conditions for profit maximisation. The Reason is true because any factor that shifts the firm's marginal cost curve—such as changes in technology or input prices—also shifts its supply curve. Therefore, Option D is correct. Option A is incorrect because the Reason is true. Option B is incorrect because the Assertion is false. Option C is incorrect because the Assertion itself is false.

❓ Why Other Options Are Incorrect

Option A → Both false.

The Reason correctly describes the determinants of the supply curve.

Option B → A true, R false.

The Assertion is incorrect since the entire SMC curve is not the supply curve.

Option C → Both true, R explains A.

The Assertion is false, so this option cannot be correct.

🎯 Strategy

Used

Elimination

Application:

Evaluate the Assertion and Reason independently before selecting the appropriate combination.

Final Logic:

Assertion False + Reason True = Option D.

🧠 Memory Trick

Supply = Rising SMC Only

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Short Run Supply Curve

6 If the firm operates in a range where the SMC is rising but is still vertically below the SAC, yet above the minimum AVC, the firm will:

A shut down completely.

B continue to produce a positive output.

C earn massive super-normal profits.

D reach its long-run equilibrium immediately.

💡 Short Explanation

Price above minimum AVC allows production. The rising SMC satisfies the second condition of profit maximisation. Being below SAC does not necessarily require shutdown.

✅ Correct Answer Explanation

A firm in perfect competition continues producing in the short run if: Price is at least equal to minimum AVC, and Price = SMC on the rising part of the SMC curve. The question states that SMC is rising and above minimum AVC, which satisfies the production condition. Although SMC is below SAC, this only indicates that the firm may not be earning super-normal profit; it can still produce. Therefore, Option B is correct. Option A is incorrect because shutdown occurs only when Price < Minimum AVC. Option C is incorrect because profit depends on the relationship between price and average cost, not merely SMC and SAC. Option D is incorrect because long-run equilibrium is not reached automatically.

❓ Why Other Options Are Incorrect

Option A → shut down completely.

Shutdown occurs only when price falls below minimum AVC.

Option C → earn massive super-normal profits.

The given information does not establish super-normal profits.

Option D → reach its long-run equilibrium immediately.

Long-run equilibrium cannot be achieved instantly.

🎯 Strategy

Used

Elimination

Application:

Identify the shutdown condition first and eliminate options inconsistent with the given AVC condition.

Final Logic:

Price ≥ AVC + Rising SMC ⇒ Positive Output.

🧠 Memory Trick

Above AVC = Keep Producing

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Short Run Production Decision

📄 Passage

"The minimum level of profit that is needed to keep a firm in the existing business is defined as normal profit. Profit that a firm earns over and above the normal profit is called the super-normal profit. In the long run, a firm does not produce if it earns anything less than the normal profit. In the short run, however, it may produce even if the profit is less than this level."

According to the passage, why might a firm logically continue producing in the short run even if it doesn't earn normal profit?

A Because it can easily change its fixed factors over a weekend.

B Because its total revenue is strictly less than variable costs.

C Because as long as Price ≥ AVC, producing minimises the losses compared to shutting down.

D Because the firm can independently influence the market price.

💡 Short Explanation

Short-run production depends on AVC. Producing may reduce losses if variable costs are covered. Fixed costs must be paid even after shutdown.

✅ Correct Answer Explanation

The passage states that a firm may continue operating in the short run even when it earns less than normal profit. This is because, as long as Price ≥ AVC, the firm covers all variable costs and contributes toward fixed costs, reducing its overall loss compared with shutting down. Therefore, Option C is correct. Option A is incorrect because fixed factors cannot be changed quickly in the short run. Option B is incorrect because if TR < TVC (or Price < AVC), the firm should shut down. Option D is incorrect because a perfectly competitive firm is a price taker.

❓ Why Other Options Are Incorrect

Option A → Because it can easily change its fixed factors over a weekend.

Fixed factors remain unchanged in the short run.

Option B → Because its total revenue is strictly less than variable costs.

This situation leads to shutdown, not continued production.

Option D → Because the firm can independently influence the market price.

A perfectly competitive firm has no control over market price.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Match the passage with the NCERT shutdown rule for the short run.

Final Logic:

Price ≥ AVC ⇒ Continue Producing.

🧠 Memory Trick

Cover AVC, Continue Production

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Short Run Shutdown Decision

📄 Passage

If the firm in the passage is in the short run and its profit falls so drastically that the market price becomes strictly less than AVC, what will the firm's profit be equal to if it rationally shuts down?

A Negative Total Fixed Cost (–TFC)

B Zero

C Positive Super-normal profit

D Normal profit

💡 Short Explanation

Price below AVC results in shutdown. Variable costs become zero after shutdown. The firm bears only total fixed cost.

✅ Correct Answer Explanation

When Price < AVC, producing would increase losses because the firm cannot recover even its variable costs. A rational firm therefore shuts down. After shutdown: Total Revenue = 0 Variable Cost = 0 Fixed Cost remains payable. Thus, Profit = – Total Fixed Cost (–TFC). Therefore, Option A is correct. Option B is incorrect because fixed costs still exist. Option C is incorrect because no production means no super-normal profit. Option D is incorrect because normal profit cannot occur during shutdown.

❓ Why Other Options Are Incorrect

Option B → Zero.

The firm still incurs fixed costs.

Option C → Positive Super-normal profit.

Shutdown cannot generate profit.

Option D → Normal profit.

Normal profit requires TR = TC.

🎯 Strategy

Used

Substitution

Application:

Apply the shutdown rule directly using the condition Price < AVC.

Final Logic:

Shutdown ⇒ Loss = TFC.

🧠 Memory Trick

Below AVC = Lose Fixed Cost Only

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Shutdown Point

9 Arrange the logical sequence of deriving the short run supply curve:
1. Identify the minimum point of the AVC curve.
2. Observe the SMC curve intersecting the AVC curve.
3. Determine the rising part of the SMC curve above this intersection.
4. Combine this rising part with zero output for prices below minimum AVC.

A 4, 3, 2, 1

B 1, 2, 3, 4

C 2, 1, 4, 3

D 3, 4, 1, 2

💡 Short Explanation

Locate the minimum AVC. Identify where SMC cuts AVC. Select the rising portion of SMC. Add the zero-output region below minimum AVC.

✅ Correct Answer Explanation

The derivation of the short-run supply curve follows these steps: 1. Identify the minimum point of AVC. 2. Observe where the SMC curve intersects AVC at this minimum. 3. Select the rising portion of the SMC curve above this point. 4. Include the zero-output region for prices below minimum AVC. Thus, the correct sequence is 1 → 2 → 3 → 4, making Option B correct.

❓ Why Other Options Are Incorrect

Option A → Begins with the final step rather than the first.
Option C → Incorrectly reverses the first two analytical steps.
Option D → Starts after the derivation has already been completed.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Arrange the steps in the same order used to construct the supply curve in NCERT.

Final Logic:

Minimum AVC → SMC Intersection → Rising SMC → Final Supply Curve.

🧠 Memory Trick

AVC → SMC → Rising MC → Supply

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Derivation of Short Run Supply Curve

10 In the zero output region of the short run supply curve, the firm's supply is effectively zero. This region occurs exactly when:

A Price > Average Fixed Cost.

B Price = Marginal Cost.

C Price < Minimum Average Variable Cost.

D Price > Minimum Average Cost.

💡 Short Explanation

The zero-output region exists below minimum AVC. The firm cannot cover variable costs. Shutdown becomes the rational decision.

✅ Correct Answer Explanation

A firm's short-run supply is zero whenever market price is less than the minimum Average Variable Cost (AVC). At this price: Total revenue cannot cover variable costs. Producing increases losses. The firm shuts down and supplies zero output. Hence, Option C is correct. Option A is incorrect because AFC does not determine shutdown. Option B is incorrect because Price = MC alone is insufficient without satisfying the AVC condition. Option D is incorrect because average cost determines profit, not the shutdown threshold.

❓ Why Other Options Are Incorrect

Option A → Price > Average Fixed Cost.

AFC has no role in determining shutdown.

Option B → Price = Marginal Cost.

Price must also satisfy the AVC condition.

Option D → Price > Minimum Average Cost.

This concerns profitability rather than the zero-output region.

🎯 Strategy

Used

Elimination

Application:

Remove options based on AFC and AC, then apply the standard shutdown rule.

Final Logic:

Price < Minimum AVC ⇒ Zero Output.

🧠 Memory Trick

Below AVC = Zero Supply

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Zero Output Region of the Short Run Supply Curve

11 Let a theoretical firm's LRMC = 2q and LRAC = q + 10/q. The minimum LRAC occurs at q = √10. What is the firm's conceptual long run supply curve equation for p ≥ minimum LRAC?

A q = p/2

B q = p - 10

C q = 2p

D q = p + 10

💡 Short Explanation

In perfect competition, the firm produces where Price = LRMC. Given LRMC = 2q, equate price with LRMC. Rearranging gives the long-run supply equation.

✅ Correct Answer Explanation

For a perfectly competitive firm in the long run: Price = LRMC Given: LRMC = 2q Therefore, p = 2q Rearranging, q = p/2 This supply relationship is valid only when the market price is at least equal to the minimum LRAC. Hence, Option A is correct. Option B is incorrect because it is not derived from p = 2q. Option C incorrectly doubles price instead of dividing it. Option D introduces a constant not obtained from the given equation.

❓ Why Other Options Are Incorrect

Option B → q = p - 10.

This equation is unrelated to the given LRMC.

Option C → q = 2p.

It incorrectly reverses the relationship.

Option D → q = p + 10.

The additional constant has no mathematical basis.

🎯 Strategy

Used

Substitution

Application:

Substitute Price = LRMC and solve the equation algebraically.

Final Logic:

Price = 2q ⇒ q = p/2.

🧠 Memory Trick

MC = Price → Solve for q

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Long Run Supply Curve

12 The long run supply curve heavily relies on the LRAC condition because in the long run:

A all costs are variable and the firm must cover its total costs to earn normal profit.

B fixed costs are so high that only super-normal profits justify production.

C the firm cannot exit the market freely.

D marginal cost ceases to be analytically relevant.

💡 Short Explanation

All costs become variable in the long run. The firm must recover total cost to continue production. Long-run equilibrium requires at least normal profit.

✅ Correct Answer Explanation

In the long run, there are no fixed costs. Every production cost becomes variable, so the firm must recover its entire cost of production, including the entrepreneur's normal profit. Thus: Price ≥ LRAC is essential. The firm continues production only if it earns at least normal profit. Therefore, Option A is correct. Option B is incorrect because firms can continue with normal profit; super-normal profit is not necessary. Option C is incorrect because firms are free to enter and exit in the long run. Option D is incorrect because LRMC remains essential for determining equilibrium output.

❓ Why Other Options Are Incorrect

Option B → fixed costs are so high that only super-normal profits justify production.

There are no fixed costs in the long run.

Option C → the firm cannot exit the market freely.

Free entry and exit are key assumptions of perfect competition.

Option D → marginal cost ceases to be analytically relevant.

LRMC remains the equilibrium condition.

🎯 Strategy

Used

Elimination

Application:

Eliminate options contradicting the assumptions of long-run perfect competition.

Final Logic:

Long Run = All Costs Variable + Price Covers LRAC.

🧠 Memory Trick

LR = All Costs Variable

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Long Run Equilibrium

13 Match List I with List II for the long run case where Price ≥ LRAC:

List I	List II
1. Firm's decision	a. Normal or super-normal profit
2. Profit status	b. p = LRMC
3. Output level rule	c. Produce positive output
4. Condition met	d. LRMC is non-decreasing

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

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

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

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

💡 Short Explanation

Price covering LRAC allows production. Profit may be normal or super-normal. Output is determined where Price = LRMC. LRMC must be rising.

✅ Correct Answer Explanation

The correct matching is: 1 → c: The firm produces a positive output. 2 → a: The firm earns normal or super-normal profit. 3 → b: Output is determined where Price = LRMC. 4 → d: LRMC must be non-decreasing (rising) for profit maximisation. Hence, Option D is correct. The remaining options incorrectly match equilibrium conditions and profit concepts.

❓ Why Other Options Are Incorrect

Option A → Firm's decision is not profit status.
Option B → Profit status cannot be "produce positive output."
Option C → Incorrectly exchanges equilibrium conditions.

🎯 Strategy

Used

Option Grouping

Application:

Match production, profit, output rule, and equilibrium condition separately before selecting the option.

Final Logic:

Produce → Profit → Price = LRMC → Rising LRMC.

🧠 Memory Trick

Produce → Profit → LRMC

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Long Run Production Conditions

14 When the market price is strictly less than the minimum LRAC, the firm's optimal strategy in the long run is to ______ the market and produce an output of ______.

A continue producing; q0

B minimise fixed costs; 1 unit

C exit; zero

D lower its price; zero

💡 Short Explanation

Price below LRAC means total costs cannot be recovered. The firm exits in the long run. Exit results in zero output.

✅ Correct Answer Explanation

If market price is below the minimum LRAC, the firm cannot even recover its total cost. Since all costs are variable in the long run, continuing production would only generate losses. Therefore, the optimal strategy is to: Exit the market Produce zero output Hence, Option C is correct. Option A is incorrect because continuing production would increase losses. Option B is incorrect because there are no fixed costs in the long run. Option D is incorrect because a perfectly competitive firm cannot choose the market price.

❓ Why Other Options Are Incorrect

Option A → continue producing; q0.

Production stops when price remains below LRAC.

Option B → minimise fixed costs; 1 unit.

Fixed costs do not exist in the long run.

Option D → lower its price; zero.

Firms are price takers and cannot reduce market price.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Relate the given price condition directly to the firm's long-run decision.

Final Logic:

Price < LRAC ⇒ Exit ⇒ Zero Output.

🧠 Memory Trick

Below LRAC = Exit

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Long Run Exit Decision

15 Why is the falling portion of the LRMC curve excluded from the firm's long run supply curve?

A It corresponds to zero marginal revenue.

B It violates the second condition of profit maximisation, making such output levels sub-optimal.

C The firm earns negative total revenue in this portion.

D It only conceptually applies to the short run.

💡 Short Explanation

Profit maximisation requires LRMC to be rising. The falling LRMC represents unstable equilibrium. Hence, it is excluded from the supply curve.

✅ Correct Answer Explanation

The firm's long-run supply curve is derived only from the rising portion of the LRMC curve because profit maximisation requires: Price = LRMC, and LRMC must be increasing (non-decreasing) at equilibrium. The falling part violates this second-order condition and therefore cannot represent an optimal production point. Hence, Option B is correct. Option A is incorrect because marginal revenue is not zero in this region. Option C is incorrect because total revenue cannot become negative. Option D is incorrect because LRMC is a long-run concept.

❓ Why Other Options Are Incorrect

Option A → It corresponds to zero marginal revenue.

Marginal revenue equals price under perfect competition and is not zero.

Option C → The firm earns negative total revenue in this portion.

Total revenue cannot be negative.

Option D → It only conceptually applies to the short run.

LRMC is exclusively a long-run cost concept.

🎯 Strategy

Used

Conceptual Elimination

Application:

Recall the second-order condition for profit maximisation and eliminate unrelated options.

Final Logic:

Only Rising LRMC Forms Long-Run Supply.

🧠 Memory Trick

Rising LRMC = Valid Supply

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Long Run Supply Curve

16 On the long run supply curve, for all prices less than the minimum LRAC, the firm is said to operate in the ______ region, supplying ______ units.

A positive output; maximal

B break-even; minimal

C shutdown; positive

D zero output; zero

💡 Short Explanation

Price below minimum LRAC cannot cover total costs. The firm exits the market in the long run. Hence, the firm's supply becomes zero.

✅ Correct Answer Explanation

In the long run, the firm produces only when Price ≥ Minimum LRAC. If the market price falls below the minimum LRAC, the firm cannot recover all its costs, including normal profit. Therefore: The firm enters the zero output region. The quantity supplied becomes zero. Hence, Option D is correct. Option A is incorrect because positive output is not supplied below minimum LRAC. Option B is incorrect because break-even occurs when Price = Minimum LRAC, not below it. Option C is incorrect because the firm does not produce a positive output in the shutdown region.

❓ Why Other Options Are Incorrect

Option A → positive output; maximal.

Positive output is supplied only when Price is at least equal to minimum LRAC.

Option B → break-even; minimal.

Break-even occurs exactly at the minimum LRAC, not below it.

Option C → shutdown; positive.

Shutdown implies zero production, not positive output.

🎯 Strategy

Used

Elimination

Application:

Eliminate all options suggesting positive production when the firm cannot recover total costs.

Final Logic:

Price < Minimum LRAC ⇒ Zero Output Region ⇒ Supply = 0.

🧠 Memory Trick

Below LRAC = Zero Supply

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Long Run Supply Curve – Zero Output Region

17 Consider the following statements regarding the short run shut down point:
I. It is the last price-output combination at which the firm produces positive output.
II. It occurs exactly where the SMC curve cuts the AVC curve at its minimum.
III. Below this point, the firm earns normal profit.

A I, II and III

B II and III

C I and III

D I and II

💡 Short Explanation

Shutdown point occurs at minimum AVC. SMC intersects AVC at its minimum. Below shutdown price, the firm stops production.

✅ Correct Answer Explanation

Evaluate each statement: Statement I: Correct. The shutdown point is the lowest price at which the firm is willing to continue producing. Below this price, output becomes zero. Statement II: Correct. Geometrically, the shutdown point occurs where the SMC curve intersects the AVC curve at its minimum point. Statement III: Incorrect. Below the shutdown point, the firm does not earn normal profit. Instead, it shuts down and incurs a loss equal to total fixed cost. Therefore, only Statements I and II are correct. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → I, II and III.

All three statements are not correct.

Option B → II and III.

Statement III is incorrect because the firm shuts down below the shutdown point.

Option C → I and III.

Statement III is false.

🎯 Strategy

Used

Elimination

Application:

Evaluate each statement independently using the definition of the shutdown point.

Final Logic:

Statements I and II are true; Statement III is false.

🧠 Memory Trick

Shutdown = Minimum AVC + SMC Intersection

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Short Run Shutdown Point

18 If a technological progress shifts the LRMC curve to the right, how is the long run shut down point (minimum LRAC) geometrically likely to be affected?

A It will shift upwards, increasing the shut down price.

B It will shift downwards or rightwards, allowing the firm to stay in business at lower prices.

C It will remain absolutely unchanged forever.

D It will instantly become equal to the short run shut down point.

💡 Short Explanation

Technological progress generally reduces production costs. Lower costs shift the LRAC downward (and often to the right). Firms can survive at lower market prices.

✅ Correct Answer Explanation

Technological improvement increases production efficiency and generally lowers long-run costs. As a result: The LRAC curve shifts downward, and in many cases the minimum point may also move rightward because efficient production occurs at a larger output. The minimum LRAC (shutdown point) becomes lower, allowing firms to continue operating even when market prices are lower than before. Thus, Option B is correct. Option A is incorrect because improved technology usually reduces costs rather than increasing them. Option C is incorrect because technology changes cost curves. Option D is incorrect because long-run and short-run shutdown points are based on different cost concepts.

❓ Why Other Options Are Incorrect

Option A → It will shift upwards, increasing the shut down price.

Better technology generally lowers production costs.

Option C → It will remain absolutely unchanged forever.

Cost curves respond to technological improvements.

Option D → It will instantly become equal to the short run shut down point.

LRAC and AVC are different concepts and cannot become identical.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Relate technological progress to its effect on production costs and the LRAC curve.

Final Logic:

Better Technology ⇒ Lower LRAC ⇒ Lower Shutdown Price.

🧠 Memory Trick

Better Technology = Lower Costs

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Long Run Cost Curves and Technology

19 If a firm manages to earn profit over and above the normal profit boundary, this excess amount is termed:

A marginal profit.

B maximum fixed profit.

C sub-normal profit.

D super-normal profit.

💡 Short Explanation

Normal profit is included in total cost. Profit above normal profit is called super-normal profit. It represents positive economic profit.

✅ Correct Answer Explanation

A firm first earns normal profit, which is the minimum return required to remain in business. Any earnings above normal profit are known as super-normal profit or economic profit. Therefore, Option D is correct. Option A is incorrect because "marginal profit" is not an NCERT concept. Option B is incorrect because there is no concept of maximum fixed profit. Option C is incorrect because sub-normal profit refers to earnings below normal profit.

❓ Why Other Options Are Incorrect

Option A → marginal profit.

This term is not used in NCERT microeconomics.

Option B → maximum fixed profit.

There is no such economic concept.

Option C → sub-normal profit.

Sub-normal profit means profit below the normal level.

🎯 Strategy

Used

Odd One Out

Application:

Identify the only standard economic term that describes profit above normal profit.

Final Logic:

Profit Above Normal = Super-normal Profit.

🧠 Memory Trick

Super = Above Normal

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Normal and Super-normal Profit

20 The break-even point is specifically defined as the point of minimum average cost where the supply curve cuts the LRAC curve (or SAC in the short run). At this exact point:

A Total revenue is exponentially maximum.

B The firm incurs its largest mathematical opportunity cost.

C The firm earns no super-normal profit and no loss.

D Marginal cost drops to zero.

💡 Short Explanation

Break-even means total revenue equals total cost. The firm earns only normal profit. Economic profit is zero.

✅ Correct Answer Explanation

At the break-even point, the firm's Total Revenue (TR) equals Total Cost (TC). This means: All explicit and implicit costs are covered. The entrepreneur earns only normal profit. There is no super-normal profit and no economic loss. Therefore, Option C is correct. Option A is incorrect because break-even does not imply maximum revenue. Option B is incorrect because opportunity cost is included in total cost and is not at its maximum. Option D is incorrect because marginal cost is positive at the equilibrium point.

❓ Why Other Options Are Incorrect

Option A → Total revenue is exponentially maximum.

Break-even concerns equality of TR and TC, not maximum revenue.

Option B → The firm incurs its largest mathematical opportunity cost.

Opportunity cost is included in total cost but is not maximised at break-even.

Option D → Marginal cost drops to zero.

Marginal cost is generally positive and equals price at equilibrium.

🎯 Strategy

Used

Elimination

Application:

Compare each option with the definition of break-even and eliminate statements inconsistent with normal profit.

Final Logic:

Break-even ⇒ TR = TC ⇒ Normal Profit Only.

🧠 Memory Trick

Break-even = No Profit, No Loss (Economic Profit = 0)

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Break-even Point and Normal Profit

CUET UG Booster Economics 4 Test (D4)

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