Theory of Production and CostMCQPYQ - Dec 2020Question 46 of 40

The law of returns to scale is a _____ concept.

Select Your Answer (Keyboard: A, B, C, D)

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Correct Answer

✅ Option b — Long run

All Options:

AShort run
BLong run
CMarket period
DNone of the above

Detailed Solution & Explanation

PYQ - Dec 2020

About This Chapter: Theory of Production and Cost

Paper

Paper 4: Business Economics

Weightage

10%

Key Topics

Function, Cost Concepts (Short/Long Run)

This chapter explores how firms produce goods and services. It covers Production Functions, the Laws of Returns (Increasing, Constant, Diminishing), and all cost concepts including Total Cost, Average Cost, Marginal Cost, Fixed Cost, and Variable Cost. Understanding why the AC and MC curves are U-shaped is crucial for exam success.

View Official ICAI Syllabus

Exam Strategy Tip

The relationship between MC and AC curves is a favorite examiner topic. Remember: MC cuts AC at its minimum point. Also focus on the difference between Short Run and Long Run cost curves.

Key Concepts to Understand

Returns to Scale

A long-run concept describing what happens to output when all factor inputs are increased proportionally. Three types: (1) Increasing Returns to Scale (output increases more than proportionally), (2) Constant Returns to Scale, (3) Decreasing Returns to Scale.

Related Comparison Tables

Fixed Cost vs Variable Cost: Cost Concepts SLM vs WDV Depreciation: CA Foundation Accounts

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