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CHSE Odisha Elective Economics study materials
CHSE Odisha Elective Economics study resources

CHSE Odisha Elective Economics practice questions

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Question 1Introduction to Economics and Basic Economic Problems

In economics, the fundamental problem of scarcity arises because:

  1. Human wants are limited while resources are unlimited
  2. Money is unevenly distributed among households
  3. Resources are limited relative to unlimited human wants Correct answer.
  4. Governments restrict the supply of all goods and services

Explanation

Scarcity is the core economic problem: society has limited productive resources but human wants are virtually unlimited. Because resources cannot satisfy every want, choices must be made about what to produce and for whom.

Question 2Introduction to Economics and Basic Economic Problems

The central problems of an economy include which set of questions?

  1. What to import, how to export, and whom to employ
  2. What to produce, how to produce, and for whom to produce Correct answer.
  3. When to tax, how to tax, and whom to tax
  4. What to save, how to invest, and whom to lend

Explanation

Every economy must decide the allocation of scarce resources, which reduces to three questions: what goods and services to produce, how to produce them (technique), and for whom output is distributed. These three are the standard central problems of an economy.

Question 3Introduction to Economics and Basic Economic Problems

The opportunity cost of choosing an option is best described as:

  1. The total cost of all options available
  2. The money actually paid for the chosen option
  3. The value of the next best alternative forgone Correct answer.
  4. The value of the least preferred alternative

Explanation

Opportunity cost measures what must be given up when a choice is made, and it is the value of the best alternative that is sacrificed. It is not the money price paid, but the forgone benefit of the next best use of the resource.

Question 4Introduction to Economics and Basic Economic Problems

A production possibility curve that is concave to the origin illustrates:

  1. Decreasing opportunity cost between the two goods
  2. Increasing opportunity cost between the two goods Correct answer.
  3. Zero opportunity cost between the two goods
  4. Constant opportunity cost between the two goods

Explanation

A concave (bowed-out) production possibility curve shows that as more of one good is produced, successively larger amounts of the other good must be sacrificed. This reflects increasing opportunity cost, arising because resources are not equally suited to both uses.

Question 5Introduction to Economics and Basic Economic Problems

A point lying inside a production possibility curve indicates that:

  1. The economy has achieved full productive efficiency
  2. The economy has experienced technological progress
  3. Resources are underutilised or inefficiently used Correct answer.
  4. The combination of goods is unattainable with current resources

Explanation

Points on the curve represent full and efficient use of resources, while points inside the curve mean output is below potential. This gap signals unemployment of resources or inefficient production methods.

Question 6Introduction to Economics and Basic Economic Problems

Which statement correctly distinguishes microeconomics from macroeconomics?

  1. Microeconomics studies national income while macroeconomics studies individual prices
  2. Microeconomics studies individual units while macroeconomics studies the economy as a whole Correct answer.
  3. Microeconomics studies inflation while macroeconomics studies consumer demand
  4. Microeconomics studies only government policy while macroeconomics studies only firms

Explanation

Microeconomics analyses individual decision-making units such as households and firms, while macroeconomics examines aggregates such as national income, general price level and total employment. The distinction rests on the unit of analysis, not on the type of agent.

Question 7Introduction to Economics and Basic Economic Problems

A positive economic statement is one that:

  1. Expresses a value judgement about what ought to be
  2. Can be tested against facts and is descriptive Correct answer.
  3. Is always favourable to the government of the day
  4. Recommends a policy to raise social welfare

Explanation

Positive statements describe what is and can in principle be verified or refuted by evidence. Normative statements, by contrast, involve value judgements about what ought to be and cannot be settled by facts alone.

Question 8Introduction to Economics and Basic Economic Problems

The statement 'The government should raise taxes on luxury goods to reduce inequality' is best classified as:

  1. A normative statement because it concerns the government
  2. A normative statement because it involves a value judgement Correct answer.
  3. A positive statement because it can be measured
  4. A positive statement because it mentions taxes

Explanation

The word 'should' signals a recommendation based on a value judgement about fairness, so the statement is normative. It cannot be confirmed or refuted purely by data because it prescribes what ought to happen.

Question 9Introduction to Economics and Basic Economic Problems

In a free-market economy, the central problems of what, how and for whom to produce are solved mainly by:

  1. A central planning authority issuing production quotas
  2. Directives issued by trade unions to their members
  3. The price mechanism operating through demand and supply Correct answer.
  4. Custom and tradition passed down through generations

Explanation

In a market economy, prices act as signals and incentives that guide producers and consumers, resolving allocation without central direction. Changes in demand and supply move prices, which in turn direct resources to their most valued uses.

Question 10Introduction to Economics and Basic Economic Problems

A mixed economy is characterised by:

  1. Coexistence of private enterprise and public sector activity Correct answer.
  2. Production only for direct self-consumption
  3. Allocation solely through tradition and custom
  4. Complete absence of private property rights

Explanation

A mixed economy combines market allocation with government intervention, so private firms and public enterprises both operate. India and many other economies are mixed because the state regulates and provides while markets coordinate much production.

Question 11Introduction to Economics and Basic Economic Problems

A farmer can grow either rice or jute on a fixed plot of land. If he devotes the land to rice, he forgoes the jute output. This situation illustrates:

  1. The law of increasing returns to scale
  2. The concept of opportunity cost Correct answer.
  3. The principle of comparative advantage
  4. The law of diminishing marginal utility

Explanation

Choosing rice means sacrificing the jute that the same land could have produced, and that forgone jute is the opportunity cost. The example shows the trade-off inherent in allocating a fixed resource between competing uses.

Question 12Introduction to Economics and Basic Economic Problems

Which of the following is a factor of production classified as capital in economics?

  1. A worker's skill acquired through training
  2. A deposit of iron ore in the ground
  3. A tractor used in farming operations Correct answer.
  4. Money kept in a savings account

Explanation

In economics, capital means produced means of production such as machinery, tools and buildings used to produce other goods. A tractor is a man-made productive asset and therefore capital.

Question 13Introduction to Economics and Basic Economic Problems

The reward for the factor of production called 'land' in economics is:

  1. Profit
  2. Rent Correct answer.
  3. Wages
  4. Interest

Explanation

Each factor of production earns a distinct reward: land earns rent, labour earns wages, capital earns interest and entrepreneurship earns profit. Rent is therefore the return to the natural resources grouped under land.

Question 14Introduction to Economics and Basic Economic Problems

An outward shift of a country's production possibility curve can be caused by:

  1. A shift of consumer preferences towards one good
  2. A reduction in the working-age population
  3. An improvement in production technology Correct answer.
  4. A rise in unemployment of existing workers

Explanation

The production possibility curve shifts outward when the economy's productive capacity expands, for example through better technology or more resources. Improved technology raises output from the same inputs, moving the entire frontier outward.

Question 15Introduction to Economics and Basic Economic Problems

An economy operating on its production possibility curve decides to produce more of good X. Which outcome must follow along a concave curve?

  1. The economy moves to a point beyond the curve
  2. No amount of good Y needs to be given up
  3. Increasing amounts of good Y must be given up for each extra unit of X Correct answer.
  4. Decreasing amounts of good Y must be given up for each extra unit of X

Explanation

On a concave curve the slope becomes steeper as production of X rises, meaning successively larger sacrifices of Y are required. This pattern is the graphical expression of increasing opportunity cost as resources are shifted from their best-suited uses.

Question 16Introduction to Economics and Basic Economic Problems

A student must choose between studying economics and working part-time for wages. If studying is chosen, the opportunity cost is:

  1. The value of the textbook purchased for the course
  2. Zero, because studying raises future earnings
  3. The tuition fee paid for the economics course only
  4. The wages forgone by not working part-time Correct answer.

Explanation

The relevant sacrifice is the next best alternative use of the student's time, which is the part-time wage income given up. Tuition and textbook costs are out-of-pocket expenses, not the forgone alternative that defines opportunity cost in this choice.

Question 17Consumer Behaviour and Demand

In consumer theory, utility refers to which of the following?

  1. The satisfaction a consumer derives from consuming a good Correct answer.
  2. The physical quantity of a good available for sale
  3. The money price paid for a good in the market
  4. The total cost incurred by a firm in production

Explanation

Utility is the want-satisfying power of a commodity, that is, the satisfaction a consumer obtains from consuming it. It is a subjective psychological magnitude measured in utils or ordinal ranks, not a price or a cost. Price and quantity belong to market and production analysis rather than to the utility concept itself.

Question 18Consumer Behaviour and Demand

A consumer's total utility rises as she consumes more units of a good, but at a decreasing rate. What is happening to marginal utility?

  1. It is zero throughout
  2. It is constant and positive
  3. It is negative and rising
  4. It is positive and falling Correct answer.

Explanation

Marginal utility is the addition to total utility from one extra unit, so a rising total utility means marginal utility is positive. Because total utility increases at a decreasing rate, each successive addition is smaller, so marginal utility is falling. This is the law of diminishing marginal utility at work.

Question 19Consumer Behaviour and Demand

The law of diminishing marginal utility states that as a consumer consumes successive units of the same commodity in a given period, the marginal utility of each additional unit:

  1. Falls Correct answer.
  2. Remains unchanged
  3. Rises at an increasing rate
  4. Becomes negative immediately

Explanation

The law holds that the utility derived from each successive unit of the same good, consumed continuously in a given time, becomes smaller. It applies to a single commodity consumed in succession and assumes tastes, income and prices are unchanged. Marginal utility may eventually become negative, but the law itself only asserts a decline.

Question 20Consumer Behaviour and Demand

Total utility is at its maximum at the point where marginal utility is:

  1. At its maximum
  2. Zero Correct answer.
  3. Equal to price
  4. Negative

Explanation

Total utility increases as long as marginal utility is positive and falls once marginal utility turns negative. Therefore total utility peaks exactly where marginal utility passes through zero. Beyond that point additional consumption reduces satisfaction, which is why rational consumers stop there in the one-good case.

Question 21Consumer Behaviour and Demand

A consumer spends her entire money income on two goods, X and Y. In equilibrium under the marginal utility approach, which condition must hold?

  1. MU of X divided by price of Y equals MU of Y divided by price of X
  2. MU of X equals MU of Y regardless of their prices
  3. MU of X divided by price of X equals MU of Y divided by price of Y Correct answer.
  4. Total utility of X equals total utility of Y

Explanation

The consumer allocates income so that the marginal utility per rupee is the same for every good purchased. If MU of X divided by its price exceeded that of Y, spending more on X and less on Y would raise total utility. Hence equilibrium requires equal weighted marginal utilities, with total expenditure equal to income.

Question 22Consumer Behaviour and Demand

An indifference curve shows all combinations of two goods that:

  1. Cost the consumer the same total amount
  2. Lie on the consumer's budget line
  3. Yield the same level of satisfaction to the consumer Correct answer.
  4. Yield the same marginal utility for each good

Explanation

An indifference curve is the locus of commodity bundles among which the consumer is indifferent because each gives the same total satisfaction. The consumer ranks these bundles equally, so she does not prefer one over another. Cost and budget considerations are represented by the budget line, not by the indifference curve.

Question 23Consumer Behaviour and Demand

Indifference curves are convex to the origin because of:

  1. A diminishing marginal rate of substitution Correct answer.
  2. Constant marginal utility of money
  3. The law of returns to scale
  4. An increasing marginal rate of substitution

Explanation

As the consumer moves down an indifference curve she has more of one good and less of the other, so she is willing to give up less and less of the second for an extra unit of the first. This diminishing marginal rate of substitution makes the curve flatter to the right, giving its convex shape. The slope of the curve is precisely the marginal rate of substitution.

Question 24Consumer Behaviour and Demand

Two indifference curves belonging to the same indifference map can never intersect because:

  1. Intersection would imply two different satisfaction levels for the same bundle Correct answer.
  2. Indifference curves are always straight lines
  3. Intersection would violate the law of demand directly
  4. Intersection would make the budget line shift outward

Explanation

If two indifference curves crossed, the point of intersection would lie on both, meaning the same bundle yields two different satisfaction levels, which is logically impossible. The consumer's preferences are assumed consistent and transitive. Hence curves of a single map are parallel in the sense of never touching.

Question 25Consumer Behaviour and Demand

The slope of a budget line is given by:

  1. The ratio of the consumer's income to total utility
  2. The negative ratio of the price of the good on the horizontal axis to the price of the good on the vertical axis Correct answer.
  3. The marginal rate of substitution at every point
  4. The ratio of total utility to marginal utility

Explanation

The budget line is written as income equals price of X times quantity of X plus price of Y times quantity of Y. Rearranging gives an intercept of income divided by the vertical-axis price and a slope of minus the price of X divided by the price of Y. The slope therefore reflects relative prices, not utility magnitudes.

Question 26Consumer Behaviour and Demand

A consumer is in equilibrium at the tangency of her budget line with an indifference curve. At that point:

  1. The marginal rate of substitution exceeds the price ratio
  2. The indifference curve is concave to the origin
  3. The budget line cuts the indifference curve at two points
  4. The marginal rate of substitution equals the price ratio of the two goods Correct answer.

Explanation

At tangency the slope of the indifference curve, the marginal rate of substitution, equals the slope of the budget line, the price ratio. This is the ordinal counterpart of equal marginal utility per rupee. Any other point on the budget line would place the consumer on a lower indifference curve.

Question 27Consumer Behaviour and Demand

The marginal rate of substitution of X for Y measures:

  1. The ratio of the price of X to the price of Y
  2. The extra total utility gained from one more unit of Y
  3. The amount of money a consumer saves by buying one more unit of X
  4. The amount of Y a consumer will give up for one more unit of X while staying on the same indifference curve Correct answer.

Explanation

The marginal rate of substitution is the rate at which the consumer substitutes one good for another without any change in total satisfaction. It is the absolute value of the slope of the indifference curve. It is a preference-based ratio of marginal utilities, not a price ratio or a money saving.

Question 28Consumer Behaviour and Demand

A consumer's income rises while prices of both goods remain unchanged. In the indifference curve diagram, this causes:

  1. A parallel outward shift of the budget line Correct answer.
  2. A steeper budget line with the same intercepts
  3. An inward rotation of the budget line about its vertical intercept
  4. No change in the budget line

Explanation

A rise in money income raises both intercepts, income divided by each price, in the same proportion. Since relative prices are unchanged, the slope stays the same and the line shifts outward parallel to itself. The consumer can then reach a higher indifference curve.

Question 29Consumer Behaviour and Demand

For a normal good, the income effect of a price fall is:

  1. To decrease the quantity demanded, opposing the substitution effect
  2. To leave quantity demanded unchanged
  3. To increase the quantity demanded, reinforcing the substitution effect Correct answer.
  4. To shift the demand curve to the left

Explanation

When the price of a normal good falls, the consumer's real income rises and she buys more of it because it is a normal good. The substitution effect also raises quantity demanded as the good becomes relatively cheaper. The two effects therefore work in the same direction, giving a downward-sloping demand curve.

Question 30Consumer Behaviour and Demand

In the case of an inferior good, a fall in its price may lead to a fall in quantity demanded if:

  1. The negative income effect is stronger than the substitution effect Correct answer.
  2. The good is also a normal good
  3. The consumer's income falls simultaneously
  4. The substitution effect is stronger than the income effect

Explanation

For an inferior good the income effect of a price fall is negative because higher real income reduces purchases of it. If this negative income effect outweighs the positive substitution effect, the net quantity demanded falls, producing the exceptional Giffen case. When substitution dominates, the usual downward-sloping demand still results.

Question 31Consumer Behaviour and Demand

A Giffen good is one for which:

  1. Demand does not respond to price at all
  2. The demand curve slopes upward because the income effect outweighs the substitution effect Correct answer.
  3. The demand curve is perfectly elastic
  4. The demand curve slopes downward because it is a luxury good

Explanation

A Giffen good is a strongly inferior good that absorbs a large share of the consumer's budget. When its price falls, real income rises enough that the consumer buys noticeably less of it, and this negative income effect dominates the substitution effect. Quantity demanded therefore moves in the same direction as price, giving an upward-sloping demand curve.

Question 32Consumer Behaviour and Demand

The substitution effect of a price change, holding satisfaction constant, always causes the quantity demanded of the good whose price has fallen to:

  1. Decrease
  2. Increase Correct answer.
  3. Remain constant
  4. Move in the same direction as price

Explanation

The substitution effect isolates the change in relative prices by keeping the consumer on the same indifference curve. A cheaper good is substituted for the relatively dearer one, so its quantity demanded always rises. This holds for normal, inferior and Giffen goods alike, which is why the substitution effect is always negative with respect to price.

Question 33Consumer Behaviour and Demand

The demand for a commodity is called derived demand when it arises:

  1. From speculation about future prices
  2. From a sudden change in consumer tastes
  3. From an increase in the consumer's income
  4. From the demand for another commodity that it helps to produce Correct answer.

Explanation

Derived demand refers to demand for a good that is not wanted for its own sake but for the goods it helps to produce, such as raw materials and factor inputs. It arises from the demand for the final product. Direct demand, by contrast, comes from the desire to consume the good itself.

Question 34Consumer Behaviour and Demand

Two goods are complementary when a fall in the price of one causes:

  1. A leftward shift of the demand curve for the other Correct answer.
  2. No change in the demand for the other
  3. An upward movement along the demand curve for the other
  4. A rightward shift of the demand curve for the other

Explanation

Complementary goods are consumed together, so a fall in the price of one raises its quantity demanded and thereby reduces demand for the other. The demand curve for the other good shifts to the left. Substitutes behave in the opposite way, with demand for the other good rising.

Question 35Consumer Behaviour and Demand

A movement along a demand curve is caused by a change in:

  1. Prices of related goods
  2. Consumer preferences
  3. Consumer income
  4. The price of the good itself Correct answer.

Explanation

A change in the good's own price changes quantity demanded and is shown as a movement along a given demand curve. Changes in income, related prices or tastes shift the whole curve. This distinction between movement along and shift of the curve is fundamental to demand analysis.

Question 36Consumer Behaviour and Demand

The demand curve for a commodity will shift to the right when:

  1. The price of a complementary good rises
  2. The price of the commodity rises
  3. Consumers' income rises and the good is normal Correct answer.
  4. Consumers expect the price to fall in future

Explanation

A rise in income for a normal good increases quantity demanded at every price, shifting the curve rightward. A rise in the good's own price causes an upward movement along the curve. A rise in the price of a complement and an expectation of falling prices both reduce current demand.

Question 37Consumer Behaviour and Demand

Which of the following best explains why the market demand curve is flatter than the demand curve of an individual consumer?

  1. Market demand reflects only the richest consumers in the market
  2. Market demand sums the quantities demanded by all consumers at each price Correct answer.
  3. Market demand ignores the law of demand
  4. Market demand is measured in money rather than quantity

Explanation

Market demand is obtained by horizontally adding the quantities each consumer demands at every price. Because more consumers enter at lower prices and each buys more, total quantity responds more strongly to price, making the market curve flatter. It is still built on the same law of demand.

Question 38Consumer Behaviour and Demand

A consumer buys a good at a price of 10 rupees per unit and would have been willing to pay 15 rupees for the first unit. His consumer surplus on that unit is:

  1. 25 rupees
  2. 5 rupees Correct answer.
  3. 15 rupees
  4. 10 rupees

Explanation

Consumer surplus is the difference between the price a consumer is willing to pay and the price actually paid. Here the willingness to pay is 15 rupees and the market price is 10 rupees, so the surplus is 5 rupees. It measures the psychological gain from the purchase in money terms.

Question 39Consumer Behaviour and Demand

Consumer surplus is represented in a demand diagram by:

  1. The vertical intercept of the demand curve
  2. The area above the demand curve and below the price line
  3. The area under the demand curve only
  4. The area below the demand curve and above the price line Correct answer.

Explanation

At each quantity the demand curve shows the maximum price consumers are willing to pay, while the horizontal price line shows what they actually pay. The gap between them, summed over all units, is the triangular area below the demand curve and above the price line. A higher price shrinks this area.

Question 40Consumer Behaviour and Demand

An indifference curve that is a straight diagonal line implies that the two goods are:

  1. Giffen goods with upward-sloping demand
  2. Unrelated goods with zero substitution
  3. Perfect complements consumed in fixed proportions
  4. Perfect substitutes with a constant marginal rate of substitution Correct answer.

Explanation

A straight-line indifference curve has a constant slope, so the consumer is always willing to trade the goods at the same fixed rate. This is the case of perfect substitutes. Perfect complements, by contrast, give L-shaped indifference curves at the corner of fixed proportions.

Question 41Producer Behaviour, Supply and Cost

In the short-run theory of production, the variable factor is best described as an input whose quantity

  1. can be changed within the period under consideration Correct answer.
  2. is fixed by the plant size and cannot be altered
  3. is measured only in monetary units
  4. changes only when the firm exits the industry

Explanation

A variable factor is one whose employment can be varied within the short period as output changes, such as labour or raw material. Fixed factors, by contrast, cannot be adjusted while the plant size remains unchanged. The short run is defined precisely by the existence of at least one fixed factor.

Question 42Producer Behaviour, Supply and Cost

When total product is rising at a diminishing rate, the corresponding marginal product is

  1. constant
  2. positive and falling Correct answer.
  3. negative and rising
  4. zero

Explanation

Marginal product is the addition to total product from one more unit of the variable factor, so it equals the slope of the total product curve. A total product rising at a decreasing rate means the slope is still positive but shrinking. Hence marginal product is positive and falling.

Question 43Producer Behaviour, Supply and Cost

Average product of labour is at its maximum at the point where

  1. marginal product equals average product Correct answer.
  2. marginal product is at its maximum
  3. total product is zero
  4. marginal product is zero

Explanation

Average product rises while marginal product exceeds it and falls once marginal product falls below it. Therefore average product peaks exactly where the marginal product curve cuts the average product curve from above. This is the standard average-marginal relationship in production theory.

Question 44Producer Behaviour, Supply and Cost

The law of variable proportions is another name for the law of

  1. comparative advantage
  2. returns to scale
  3. returns to a factor Correct answer.
  4. diminishing marginal utility

Explanation

The law of variable proportions describes how output responds when one factor is varied while others are held fixed, which is the short-run law of returns to a factor. Returns to scale, by contrast, concerns proportionate changes in all inputs in the long run. The two are distinct laws of production.

Question 45Producer Behaviour, Supply and Cost

A firm's production function in the short run is written Q = f(L) with capital fixed. If the marginal product of labour becomes negative, total product must be

  1. falling Correct answer.
  2. constant
  3. at its maximum
  4. rising at an increasing rate

Explanation

Marginal product is the change in total product per extra unit of labour, so a negative value means total product declines as more labour is added. This occurs in the third stage of the law of variable proportions, where overcrowding reduces output. Total product is at its maximum only when marginal product equals zero.

Question 46Producer Behaviour, Supply and Cost

Total fixed cost of a firm is best described as the cost that

  1. falls continuously as output expands
  2. exists only when production is positive
  3. remains unchanged at every level of output, including zero output Correct answer.
  4. equals total variable cost at full capacity

Explanation

Fixed costs arise from fixed factors such as rent on a building or insurance, and they must be paid even if output is zero. They do not vary with the quantity produced in the short run. This is why the total fixed cost curve is a horizontal line.

Question 47Producer Behaviour, Supply and Cost

Average fixed cost falls continuously as output rises because

  1. fixed factors become more productive in the short run
  2. variable costs decline with larger output
  3. the price of fixed inputs falls with output
  4. a constant total fixed cost is spread over a larger number of units Correct answer.

Explanation

Average fixed cost equals total fixed cost divided by output. Since total fixed cost is constant, dividing it by a larger quantity necessarily yields a smaller figure. This is why the average fixed cost curve is a rectangular hyperbola that never touches either axis.

Question 48Producer Behaviour, Supply and Cost

The vertical distance between the total cost curve and the total variable cost curve at any output equals

  1. average variable cost
  2. total fixed cost Correct answer.
  3. average total cost
  4. marginal cost

Explanation

Total cost is the sum of total fixed cost and total variable cost, so TC minus TVC leaves TFC at every level of output. Graphically the two curves are parallel, separated by a constant vertical gap. That gap is the total fixed cost.

Question 49Producer Behaviour, Supply and Cost

Marginal cost is defined as the addition to total cost resulting from producing

  1. one more unit of the fixed factor
  2. output at the minimum average cost point
  3. one more unit of output Correct answer.
  4. the first unit of output only

Explanation

Marginal cost measures the change in total cost when output increases by one unit, and in the short run it equals the change in total variable cost. It is the slope of the total cost curve. Because fixed cost does not change, marginal cost is driven entirely by variable cost.

Question 50Producer Behaviour, Supply and Cost

The short-run marginal cost curve cuts the average variable cost curve

  1. only at zero output
  2. at the maximum point of average variable cost
  3. at the minimum point of average variable cost Correct answer.
  4. where average variable cost is still falling

Explanation

Whenever marginal cost lies below average variable cost, the average is pulled down; when marginal cost lies above, the average is pulled up. The crossing point is therefore the minimum of average variable cost. The same average-marginal logic makes marginal cost cut average total cost at its minimum.