SSC CGL Finance – Theory of Production & Cost – Level 2 · Exam Level · Paper III Sprint

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SSC CGL Finance – Theory of Production & Cost – Level 2 · Exam Level · Paper III Sprint – 16 questions, subject: Finance & Economics (Tier II Paper III). Every question has the correct answer with a one-line explanation; tap "Show Answer". Free practice for TNPSC, UPSC, SSC, Bank and RRB exams – Shanmugam IAS Academy, Coimbatore.

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1.  
In the law of variable proportions, a rational producer operates in:

Correct Answer: A [Stage II (MP and AP both falling, MP positive)]

Explanation:

Stage I wastes the fixed factor; Stage III has negative MP.

2.  
Statement-basedWhich is/are correct?
I. MC cuts ATC at the lowest point of ATC.
II. The AFC curve never touches the output axis.

Correct Answer: D [Both I and II]

Explanation:

MC passes through ATC minimum; AFC = TFC/Q > 0 for every Q.

3.  
Match the followingMatch:
P. TC − TFC Q. TC ÷ Q R. ΔTC ÷ ΔQ
1. ATC 2. MC 3. TVC

Correct Answer: C [P-3, Q-1, R-2]

Explanation:

TC − TFC = TVC; TC/Q = ATC; ΔTC/ΔQ = MC.

4.  
Assertion–Reason
A: The long-run average cost curve is U-shaped.
R: As a firm grows it first enjoys economies of scale and later faces diseconomies of scale.

Correct Answer: B [Both A and R are true and R explains A]

Explanation:

Economies pull LAC down, diseconomies push it up → U shape.

5.  
The production function Q = 5L0.3K0.5 shows:

Correct Answer: D [Decreasing returns to scale]

Explanation:

Exponent sum 0.3 + 0.5 = 0.8 < 1.

6.  
A firm uses labour and capital at least cost. MP of labour = 24, wage = ₹ 8, MP of capital = 36. The price of capital must be:

Correct Answer: A [₹ 12]

Explanation:

MPL/w = MPK/r → 24/8 = 36/r → r = 12.

7.  
A price-taking firm faces a price of ₹ 72. Its total cost for 1 to 6 units is ₹ 100, 130, 150, 180, 230, 300 (TFC = ₹ 60). The profit-maximising output (up to 6 units) is:

Correct Answer: C [6 units]

Explanation:

Profit: 4 → 108, 5 → 130, 6 → 132.

8.  
For the same firm at the price of ₹ 72, the maximum profit is:

Correct Answer: B [₹ 132]

Explanation:

TR 6 × 72 = 432 − TC 300 = 132.

9.  
A shop's revenue is ₹ 12,00,000 and payments to outsiders are ₹ 7,50,000. The owner gives up a salary of ₹ 2,60,000 and interest of ₹ 60,000 on own capital. Economic profit is:

Correct Answer: B [₹ 1,30,000]

Explanation:

Accounting profit 4,50,000 − implicit costs 3,20,000 = 1,30,000.

10.  
Odd one outwhich is an EXTERNAL economy of scale?

Correct Answer: C [A pool of skilled workers growing in the region of the industry]

Explanation:

External economies arise from growth of the industry/region; the others come from the firm's own size.

11.  
Two-quantity comparisonTwo-quantity comparison (TFC = ₹ 60; at Q = 6, ATC = ₹ 50, AVC = ₹ 40):
Quantity I: AFC at Q = 6
Quantity II: ATC − AVC at Q = 6

Correct Answer: A [Quantity I = Quantity II]

Explanation:

AFC = 60/6 = 10 and ATC − AVC = 50 − 40 = 10.

12.  
Trick SpotterTVC for 7 and 8 units is ₹ 245 and ₹ 312 (TFC ₹ 90). The fastest way to get MC of the 8th unit is:

Correct Answer: D [312 − 245 = ₹ 67]

Explanation:

Answer: 312 − 245 = ₹ 67. MC = ΔTVC (TFC cancels).

13.  
Spot My Mistake“TC of 6 units is ₹ 312 and of 5 units ₹ 270, so MC of the 6th unit = 312/6 = ₹ 52.” The correct MC is:

Correct Answer: C [₹ 42]

Explanation:

312/6 is ATC. MC = 312 − 270 = ₹ 42.

14.  
The law of variable proportions operates in:

Correct Answer: D [The short run (one factor fixed)]

Explanation:

It needs a fixed factor. Returns to scale is the long-run law.

15.  
When marginal product is greater than average product, average product is:

Correct Answer: A [Rising]

Explanation:

Adding a unit above the average pulls the average up.

16.  
Fill in the blankThe long-run average cost curve, drawn as a smooth curve touching many short-run AC curves, is called the ______ curve.

Correct Answer: B [envelope]

Explanation:

LAC envelops the SACs (also called the planning curve).

➤ Full notes, shortcuts and every answer explained – SSC CGL 2026 Finance & Economics (Tier II Paper III) book (₹149): www.shanmugamiasacademy.in/study-materials/ssc-cgl-finance-economics

📘 SSC CGL 2026 – General Studies – Finance & Economics (Tier II Paper III)
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