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Karnataka II PUC Economics (KSEAB) study materials
Karnataka II PUC Economics (KSEAB) study resources

Karnataka II PUC Economics (KSEAB) practice questions

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Question 1Introductory Microeconomics

In the theory of consumer behaviour, the utility derived from consuming one additional unit of a commodity is called:

  1. Total utility
  2. Ordinal utility
  3. Average utility
  4. Marginal utility Correct answer.

Explanation

Marginal utility is the addition to total utility from consuming one more unit of a good. It is calculated as the change in total utility divided by the change in quantity consumed, and it generally diminishes as consumption rises.

Question 2Introductory Microeconomics

A consumer is in equilibrium under the utility approach when the marginal utility of a good equals:

  1. Its average utility
  2. Zero
  3. Its price Correct answer.
  4. Its total utility

Explanation

Under the utility approach a consumer maximises satisfaction when marginal utility of the commodity equals its price, meaning the satisfaction per rupee is equalised across goods. Consuming beyond that point would make marginal utility fall below price and reduce net satisfaction.

Question 3Introductory Microeconomics

An indifference curve is convex to the origin because of:

  1. Diminishing marginal rate of substitution Correct answer.
  2. Constant marginal rate of substitution
  3. Increasing marginal rate of substitution
  4. Zero marginal rate of substitution

Explanation

The marginal rate of substitution diminishes as more of one good is substituted for another, which makes the indifference curve slope steeply at first and flatten out later. This diminishing MRS is what gives the curve its convex shape toward the origin.

Question 4Introductory Microeconomics

If the price of a good rises and, as a result, the quantity demanded of a complementary good falls, the cross elasticity of demand between the two goods is:

  1. Zero
  2. Negative Correct answer.
  3. Positive
  4. Infinite

Explanation

Complementary goods are consumed together, so a price rise in one reduces demand for the other. Cross elasticity measures the percentage change in quantity of one good over the percentage change in price of another, and for complements the two changes move in opposite directions, giving a negative value.

Question 5Introductory Microeconomics

The demand curve facing a perfectly competitive firm is:

  1. Downward sloping
  2. Horizontal at the market price Correct answer.
  3. Vertical at the firm's output
  4. Upward sloping

Explanation

A perfectly competitive firm is a price taker, so it can sell any quantity at the prevailing market price. Its own demand curve is therefore a horizontal line at that price, and price equals marginal revenue for every unit sold.

Question 6Introductory Microeconomics

In the short run, a firm shuts down production when price falls below:

  1. Average fixed cost
  2. Average total cost
  3. Marginal cost
  4. Average variable cost Correct answer.

Explanation

A firm must cover its variable costs to justify continuing production, because fixed costs are incurred whether or not it produces. When price falls below minimum average variable cost, the firm loses less by shutting down than by producing.

Question 7Introductory Microeconomics

The law of variable proportions operates in the short run because:

  1. Technology changes continuously
  2. At least one factor of production is fixed Correct answer.
  3. The scale of the plant can be expanded freely
  4. All factors of production can be varied

Explanation

The law of variable proportions examines output when one input is varied while other inputs stay fixed. The presence of a fixed factor, such as capital or land, is what causes marginal returns to eventually diminish.

Question 8Introductory Microeconomics

Which of the following is a fixed cost for a firm in the short run?

  1. Cost of raw materials
  2. Wages paid to daily-wage labour
  3. Electricity charges for running machines
  4. Rent paid on a factory building Correct answer.

Explanation

Fixed costs do not vary with the level of output in the short run, and rent on a leased factory building must be paid even when production is zero. Wages for casual labour, raw materials and power vary with output and are therefore variable costs.

Question 9Introductory Microeconomics

A monopolist maximises profit at the output where:

  1. Price equals marginal cost
  2. Total revenue is maximum
  3. Average revenue equals average cost
  4. Marginal revenue equals marginal cost Correct answer.

Explanation

Every profit-maximising firm, including a monopolist, expands output until marginal revenue equals marginal cost. Because the monopolist faces a downward-sloping demand curve, price exceeds marginal revenue and hence exceeds marginal cost at equilibrium.

Question 10Introductory Microeconomics

Which market form is characterised by a few large firms whose decisions are mutually interdependent?

  1. Oligopoly Correct answer.
  2. Monopoly
  3. Perfect competition
  4. Monopolistic competition

Explanation

Oligopoly has a small number of large sellers, so each firm must consider the likely reactions of rivals before changing price or output. This mutual interdependence is the defining feature that separates oligopoly from other market structures.

Question 11Introductory Microeconomics

The demand for a good is said to be perfectly inelastic when the elasticity coefficient equals:

  1. One
  2. Less than one
  3. Zero Correct answer.
  4. Infinity

Explanation

Perfectly inelastic demand means quantity demanded does not change at all when price changes, so the elasticity coefficient is zero and the demand curve is vertical. Necessities with no substitutes come closest to this case.

Question 12Introductory Microeconomics

A consumer spends her entire income on goods X and Y. If the price of X falls while income and the price of Y remain unchanged, the budget line:

  1. Shifts parallel to the right
  2. Rotates inward along the X-axis
  3. Remains unchanged
  4. Rotates outward along the X-axis Correct answer.

Explanation

A fall in the price of X raises the maximum quantity of X the consumer can buy if all income goes to X, so the intercept on the X-axis moves outward. The Y-intercept is unchanged because income and the price of Y are constant, so the line rotates outward.

Question 13Introductory Microeconomics

When total product is at its maximum, marginal product is:

  1. Zero Correct answer.
  2. Maximum
  3. Equal to average product
  4. Negative

Explanation

Marginal product measures the change in total product from adding one more unit of the variable input. Total product stops rising exactly when the addition from the next unit becomes zero, so marginal product is zero at that point.

Question 14Introductory Microeconomics

In a monopoly, price is greater than marginal cost at equilibrium. This indicates that:

  1. The monopolist is incurring losses
  2. The monopolist is restricting output below the competitive level Correct answer.
  3. The monopolist is producing at a socially optimal output
  4. Consumer surplus is maximised

Explanation

When price exceeds marginal cost, some units that consumers value more than their cost of production are not being produced. The monopolist restricts output below the socially optimal level, which creates a deadweight loss compared with perfect competition.

Question 15Introductory Microeconomics

A firm's total revenue is 5,000 rupees when it sells 100 units and 6,000 rupees when it sells 120 units. The marginal revenue of the additional 20 units is:

  1. 100 rupees per unit
  2. 20 rupees per unit
  3. 50 rupees per unit Correct answer.
  4. 10 rupees per unit

Explanation

Marginal revenue equals the change in total revenue divided by the change in quantity. Here the change in revenue is 1,000 rupees and the change in quantity is 20 units, giving 50 rupees per unit.

Question 16Introductory Microeconomics

Which of the following best describes the relationship between total utility and marginal utility?

  1. Total utility always rises when marginal utility is negative
  2. Total utility is the sum of the marginal utilities of successive units Correct answer.
  3. Marginal utility is always greater than total utility
  4. Marginal utility is the sum of total utilities

Explanation

Total utility accumulates the satisfaction from each unit consumed, so it equals the sum of the marginal utilities of all units. When marginal utility becomes negative, total utility begins to fall rather than rise.

Question 17Introductory Microeconomics

The supply curve of a firm in a perfectly competitive market in the short run is given by:

  1. The marginal revenue curve
  2. The average fixed cost curve
  3. The portion of the marginal cost curve above minimum average variable cost Correct answer.
  4. The entire average total cost curve

Explanation

A competitive firm supplies where price equals marginal cost, provided price covers average variable cost. Hence the rising part of the marginal cost curve above the shutdown point traces out the firm's short-run supply curve.

Question 18Introductory Microeconomics

If the demand for a good is elastic and the seller raises its price, total revenue will:

  1. Remain unchanged
  2. Become zero
  3. Rise
  4. Fall Correct answer.

Explanation

With elastic demand, the percentage fall in quantity demanded exceeds the percentage rise in price, so total revenue falls. The price effect is outweighed by the quantity effect when elasticity is greater than one.

Question 19Introductory Microeconomics

Which of the following is a characteristic of monopolistic competition?

  1. Product differentiation with many sellers and free entry Correct answer.
  2. Homogeneous products sold by many sellers
  3. A single seller protected by barriers to entry
  4. A few sellers producing identical products

Explanation

Monopolistic competition combines many sellers, free entry and exit, and differentiated products that give each firm limited price-setting power. The differentiation may be real or simply perceived through branding and packaging.

Question 20Introductory Microeconomics

A consumer's marginal rate of substitution of X for Y is 3. If the price of X is 30 rupees and the price of Y is 15 rupees, the consumer should:

  1. Stop consuming both goods
  2. Buy more Y and less X to reach equilibrium Correct answer.
  3. Buy more X and less Y to reach equilibrium
  4. Keep the present combination unchanged

Explanation

At equilibrium the marginal rate of substitution should equal the price ratio, which here is 30 divided by 15, or 2. Since the consumer's MRS of 3 exceeds the price ratio, X is valued more highly relative to its price than Y, so substituting Y for X raises satisfaction until the two ratios are equal.

Question 21Introductory Microeconomics

Economic cost of production differs from accounting cost because economic cost includes:

  1. Explicit costs plus implicit costs Correct answer.
  2. Only explicit money payments
  3. Only implicit costs
  4. Only fixed costs

Explanation

Economic cost adds the opportunity cost of the entrepreneur's own resources, called implicit cost, to the explicit payments made to outsiders. Accounting cost records only the explicit money outlays shown in the books.

Question 22Introductory Microeconomics

The production possibility frontier is concave to the origin because:

  1. Technology is constant
  2. Opportunity cost of producing more of one good increases Correct answer.
  3. Resources are equally efficient in all uses
  4. All resources are unemployed

Explanation

As more of one good is produced, resources less suited to it must be transferred from the other good, so each additional unit costs more of the alternative. This increasing opportunity cost bends the frontier outward from the origin.

Question 23Introductory Microeconomics

In the long run, a perfectly competitive firm earns only normal profit because:

  1. Consumers refuse to pay more than cost
  2. The government fixes prices
  3. Free entry and exit eliminate supernormal profits Correct answer.
  4. Firms collude to keep prices low

Explanation

Supernormal profits attract new firms, which increases market supply and pushes price down until profits are normal. Losses drive firms out, raising price back to the minimum of average total cost, so long-run equilibrium leaves only normal profit.

Question 24Introductory Microeconomics

A price ceiling set below the equilibrium price in a competitive market will generally lead to:

  1. A surplus of the good
  2. Market equilibrium output
  3. A shortage of the good Correct answer.
  4. An upward shift of the supply curve

Explanation

A binding price ceiling holds price below equilibrium, so quantity demanded exceeds quantity supplied and a shortage appears. Non-price rationing, such as queues or black markets, often emerges as a result.

Question 25Introductory Microeconomics

Which statement about the relationship between average cost and marginal cost is correct?

  1. Marginal cost pulls average cost toward itself, so average cost falls when marginal cost is below it Correct answer.
  2. Average cost is always falling as output expands
  3. Marginal cost always exceeds average cost
  4. Marginal cost is unaffected by the level of output

Explanation

Marginal cost is the cost of the last unit, so when it lies below average cost it drags the average down, and when it lies above it pushes the average up. The two curves therefore meet at the minimum point of average cost.

Question 26Introductory Microeconomics

In microeconomics, the central problem of scarcity arises because:

  1. consumers are unable to compare the utilities of different goods
  2. human wants are unlimited while resources are limited and have alternative uses Correct answer.
  3. producers always aim to maximise sales revenue rather than profit
  4. the government does not allocate resources efficiently in a market economy

Explanation

Scarcity is the fundamental economic problem: wants are unlimited, but the resources available to satisfy them are limited and can be put to alternative uses. This forces individuals and society to make choices about what, how, and for whom to produce.

Question 27Introductory Microeconomics

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

  1. tastes and preferences of consumers
  2. the price of coffee Correct answer.
  3. consumer income
  4. the price of tea

Explanation

A movement along a demand curve is a change in quantity demanded caused only by a change in the good's own price, other things remaining constant. Changes in income, related good prices, or tastes shift the entire demand curve.

Question 28Introductory Microeconomics

The elasticity of supply is said to be perfectly elastic when the supply curve is:

  1. a straight line passing through the origin
  2. a vertical straight line
  3. a downward-sloping straight line
  4. a horizontal straight line Correct answer.

Explanation

Perfectly elastic supply means producers will supply any quantity at a given price but none at a lower price, so the supply curve is horizontal. Elasticity of supply is infinite in this case.

Question 29Introductory Microeconomics

The marginal rate of transformation (MRT) along a production possibility frontier measures:

  1. the amount of one good sacrificed to produce one more unit of the other good Correct answer.
  2. the ratio of the prices of the two goods in the market
  3. the rate at which a consumer substitutes one good for another
  4. the total cost of producing both goods together

Explanation

The MRT is the slope of the production possibility frontier and shows the opportunity cost of one good in terms of the other. It is the quantity of good Y given up to release resources for one additional unit of good X.

Question 30Introductory Microeconomics

If the price of a good rises from 10 rupees to 12 rupees and quantity demanded falls from 100 units to 80 units, the price elasticity of demand (using the percentage method) is:

  1. 2.0
  2. 0.5
  3. 1.0 Correct answer.
  4. 0.8

Explanation

Percentage change in quantity demanded is (20/100)×100 = 20 per cent; percentage change in price is (2/10)×100 = 20 per cent. Elasticity is 20/20 = 1.0, which is unitary elastic.

Question 31Introductory Microeconomics

The total utility derived from consuming five units of a good is 50 utils and from four units is 44 utils. The marginal utility of the fifth unit is:

  1. 50 utils
  2. 6 utils Correct answer.
  3. 10 utils
  4. 44 utils

Explanation

Marginal utility is the addition to total utility from consuming one more unit, calculated as 50 − 44 = 6 utils. It is the change in total utility divided by the change in quantity, here one unit.

Question 32Introductory Microeconomics

In the short-run cost schedule of a firm, the vertical distance between the total cost curve and the total variable cost curve at any output level equals:

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

Explanation

Total cost is the sum of total fixed cost and total variable cost, so TC − TVC = TFC at every level of output. Fixed cost does not vary with output, which is why the gap between the two curves stays constant.

Question 33Introductory Microeconomics

A firm sells 50 units at 20 rupees each. Its total variable cost is 600 rupees and total fixed cost is 200 rupees. The firm's profit is:

  1. 200 rupees Correct answer.
  2. 800 rupees
  3. 1000 rupees
  4. 400 rupees

Explanation

Total revenue is 50 × 20 = 1,000 rupees and total cost is 600 + 200 = 800 rupees. Profit is TR − TC = 1,000 − 800 = 200 rupees.

Question 34Introductory Microeconomics

When average cost is falling as output increases, marginal cost must be:

  1. greater than average cost
  2. equal to average cost
  3. constant at all levels of output
  4. less than average cost Correct answer.

Explanation

Average cost falls only when the cost of the additional unit, marginal cost, is below the existing average. By the same logic, average cost rises when marginal cost exceeds it.

Question 35Introductory Microeconomics

A consumer is in equilibrium with two goods X and Y. If the marginal utility of X is 30 utils, the price of X is 10 rupees, and the price of Y is 5 rupees, the marginal utility of Y must be:

  1. 15 utils Correct answer.
  2. 30 utils
  3. 60 utils
  4. 6 utils

Explanation

The equi-marginal principle requires MUx/Px = MUy/Py. Here 30/10 = 3, so MUy must satisfy MUy/5 = 3, giving MUy = 15 utils.

Question 36Introductory Microeconomics

An indifference curve is convex to the origin because:

  1. the prices of the two goods change along the curve
  2. the marginal rate of substitution diminishes as more of one good is substituted for the other Correct answer.
  3. the marginal rate of substitution is constant along the curve
  4. the consumer prefers more of both goods to less

Explanation

Convexity reflects a diminishing marginal rate of substitution: as the consumer gives up more Y for X, each additional unit of X is worth less Y to her. This property follows from the assumption that preferences are convex.

Question 37Introductory Microeconomics

If two goods are perfect substitutes, the indifference curves between them are:

  1. convex to the origin
  2. straight lines with a constant slope Correct answer.
  3. right-angled L-shaped curves
  4. vertical straight lines

Explanation

Perfect substitutes have a constant marginal rate of substitution, so the indifference curves are downward-sloping straight lines. The consumer is willing to exchange the goods at a fixed rate regardless of quantities consumed.

Question 38Introductory Microeconomics

A consumer's budget line shifts outward parallel to the original line when:

  1. the price of one good falls while money income is unchanged
  2. money income rises while the prices of both goods remain unchanged Correct answer.
  3. both prices and money income rise in the same proportion
  4. the price of one good rises while money income is unchanged

Explanation

A parallel outward shift of the budget line occurs when income rises and prices are constant, because the intercepts on both axes increase proportionately while the slope (the price ratio) is unchanged. The consumer can now afford more of both goods.

Question 39Introductory Microeconomics

A firm's production function shows total product rising at a diminishing rate as more labour is employed. This means that the marginal product of labour is:

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

Explanation

When total product increases at a decreasing rate, each additional worker adds less to output than the previous one, so marginal product is positive but declining. This is the second stage of the law of variable proportions.

Question 40Introductory Microeconomics

In a perfectly competitive market, the short-run supply curve of an individual firm is the portion of its marginal cost curve that lies:

  1. above the average variable cost curve Correct answer.
  2. above the average total cost curve
  3. above the average fixed cost curve
  4. below the average variable cost curve

Explanation

A competitive firm supplies where price equals marginal cost, provided price covers average variable cost. Below that point it shuts down, so the relevant supply curve is the MC curve above the minimum AVC.

Question 41Introductory Microeconomics

A firm's fixed cost is 100 rupees and its marginal cost of producing each additional unit is constant at 10 rupees. The average total cost at an output of 10 units is:

  1. 10 rupees
  2. 15 rupees
  3. 20 rupees Correct answer.
  4. 110 rupees

Explanation

Total variable cost for 10 units is 10 × 10 = 100 rupees, and total cost is 100 + 100 = 200 rupees. Average total cost is therefore 200/10 = 20 rupees.

Question 42Introductory Microeconomics

In a monopoly, the marginal revenue curve lies below the demand curve because:

  1. the monopolist produces at a point where price equals marginal cost
  2. the monopolist has no control over the market price
  3. to sell an additional unit the monopolist must lower the price on all units sold Correct answer.
  4. the monopolist faces a horizontal demand curve

Explanation

A monopolist faces a downward-sloping market demand curve. Selling more requires lowering the price on every unit, so marginal revenue is less than price and the MR curve lies below demand.

Question 43Introductory Microeconomics

A monopolistically competitive firm in long-run equilibrium produces where:

  1. marginal revenue equals marginal cost and price exceeds average cost
  2. marginal revenue equals marginal cost and price equals average cost Correct answer.
  3. price equals marginal cost and marginal cost is at its minimum
  4. average cost is at its minimum and price equals marginal cost

Explanation

Free entry and exit drive economic profit to zero in the long run, so price equals average cost. The firm still maximises profit where MR = MC, which occurs at an output below minimum average cost, giving excess capacity.

Question 44Introductory Microeconomics

Which feature distinguishes oligopoly from monopolistic competition?

  1. Freedom of entry and exit for all firms
  2. Product differentiation with many sellers
  3. A single seller controlling the entire market
  4. Strategic interdependence among a small number of firms Correct answer.

Explanation

Oligopoly has few large firms whose pricing and output decisions are mutually interdependent, so each firm must consider rivals' reactions. Monopolistic competition has many sellers, each too small to affect the others strategically.

Question 45Introductory Microeconomics

A firm's average revenue is 25 rupees and its average total cost is 20 rupees at an output of 100 units. The firm's total profit is:

  1. 500 rupees Correct answer.
  2. 2,500 rupees
  3. 2,000 rupees
  4. 5 rupees

Explanation

Profit per unit is AR − ATC = 25 − 20 = 5 rupees, and total profit is 5 × 100 = 500 rupees. Alternatively, total revenue (2,500) minus total cost (2,000) gives the same result.

Question 46Introductory Microeconomics

The demand for salt is generally inelastic because:

  1. salt is produced under conditions of perfect competition
  2. salt consumption rises sharply when its price falls
  3. salt has few close substitutes and forms a small part of the consumer's budget Correct answer.
  4. salt is a luxury good with many substitutes available

Explanation

Price elasticity of demand is low when a good has few substitutes and takes a small share of income, as with salt. Consumers therefore do not change quantity much when the price changes.

Question 47Introductory Microeconomics

A firm's total revenue is 1,000 rupees when it sells 40 units and 1,200 rupees when it sells 50 units. The marginal revenue of the 50th unit is:

  1. 200 rupees
  2. 2 rupees
  3. 20 rupees Correct answer.
  4. 24 rupees

Explanation

Marginal revenue is the change in total revenue divided by the change in quantity: (1,200 − 1,000)/(50 − 40) = 200/10 = 20 rupees. It is the addition to revenue from selling each extra unit in this range.

Question 48Introductory Microeconomics

A price floor set above the equilibrium price in a competitive market will result in:

  1. a shift of the demand curve to the left
  2. a surplus, because quantity supplied exceeds quantity demanded Correct answer.
  3. no change, because the market always clears at equilibrium
  4. a shortage, because quantity demanded exceeds quantity supplied

Explanation

A binding price floor holds the price above equilibrium, so suppliers offer more than consumers are willing to buy, creating excess supply. The quantity actually traded falls to the quantity demanded at the floor price.

Question 49Introductory Microeconomics

A monopolist faces the demand schedule P = 100 − 2Q and has zero marginal cost. The profit-maximising output is:

  1. 100 units
  2. 50 units
  3. 20 units
  4. 25 units Correct answer.

Explanation

Total revenue is TR = 100Q − 2Q², so marginal revenue is MR = 100 − 4Q. Setting MR equal to marginal cost of zero gives 100 − 4Q = 0, hence Q = 25 units.

Question 50Introductory Microeconomics

In the long run, a firm in perfect competition produces at the minimum point of its long-run average cost curve. This implies that:

  1. the firm earns supernormal profit and charges a price above marginal cost
  2. the firm is productively efficient and earns only normal profit Correct answer.
  3. the firm produces a differentiated product at excess capacity
  4. the firm sets price equal to average fixed cost

Explanation

Free entry and exit push price down to the minimum of long-run average cost, where price equals marginal cost and average cost. At this point the firm covers all costs including normal profit and produces at the lowest possible unit cost.