From: Demilie & Amesalu

Part one: Choose the best alternative for each of the following questions
1. Which of the following is/ are not included in the measurement of GDP?
A. Value of households’ consumption expenditure
B. Value of intermediate goods
C. Value of newly produced final goods
D. Government’s expenditure on final goods and services
E. All of the above
2. Suppose a country’s economy be a worth of 1,200 billion Birr GDP at current price and the
GDP-deflator is 120, then the countries real GDP is about___ Billion Birr
A. 10 C. 1,200
B. 1,080 D. 1,320
3. Assume Mr. X lost his job six months ago, and he has been actively looking for a new job ever
since. Then in which form of unemployment that Mr. X would be categorized?
A. Cyclical C. Structural
B. Frictional D. None of the above
4. If a country faces a negative Net Factor Income (NFI) then:
A. GDP is higher than GNP C. Both GDP and GNP are the
same
B. GNP is higher than GDP D. We can’t compare GDP and
GNP
5. Which of the following is an example of a perfectly competitive firm's short-run decision?
A. How much to produce to maximize profit
B. How much to spend on advertisement and sales promotion
C. What price to charge buyers for the product
D. All of the above
6. If the short-run average variable costs of production for a firm are rising, then this indicates
that:
A. Average fixed costs are constant.
B. Average total costs are at a maximum.
C. Average variable costs are below average fixed costs.
D. Marginal costs are above average variable costs.
7. In the shor-run a firm shuts down the its business when:
A. Price exceeds the short-run average total cost
B. Price exceeds the short-run average variable cost
C. Price is below the minimum average variable cost
 D. Price is equal to short-run average total cost.

8. Assume a perfectly competitive firm's short-run cost function is given by: TC = 300 + 90q +
3q2. If the market price is Birr 150, what should it do?
A. Produce 10 units and continue operating
B. Produce 7 units and continue operating
C. Produce 9 units and continue operating
D. Produce zero units (that means, shut down)
2 2 3
9. Given short run production function of a firm, Q=12 L − L , where L = Labor, what will be
3
the amount of labor employed at maximum point of Average Product of Labor (APL) and
Marginal Product of Labor (MPL), respectively?
A. 8 & 9 B. 9 & 6 C. 4 & 12 D. 9 & 12
10.A market with a large number of firms, differentiated products, and free entry and exit is
called
A. Monopolistic competition market C. Oligopoly market
B. Monopoly market D. Perfect competition market
11.Which of the following statements accurately describes the relationship between average
product (AP) and marginal product (MP) of labor?
A. AP and MP are always parallel to each other
B. AP intersects MP at the maximum of MP
C. AP is always rising when MP is falling and vice versa
D. AP rises when MP is above it and falls when MP is below it.
12.The nonlinear and convex shape of indifference curve implies
A. Constant marginal rate of substitution between goods
B. Decreasing marginal rate of substation between goods
C. Increasing opportunity cost
D. Infinite possibility of substitution between goods
13.Firms under monopolistically competitive market structure have limited monopoly power to
control price because they:
A. Are few in number C. Are large number of sellers
B. Produce homogenous products D. Produce differentiated product
14.Suppose utility function of a consumer be given by U ( x )=4 X 2 and let the market price of the
good be 80 Birr, what level of good X shall the consumer purchase to maximize his/her utility?
A. 20 C. 10
B. 80 D. 40
15.If the utility function of a consumer is given by U ( A , B )= A2 B 2 then what is the
MRS A , B?
2
A A
A. C.
B
2
B
2
A B
B. D.
B
2
A
16.If marginal cost is below average cost,
A. The slope of average cost will be negative C. Average cost increase
B. Average variable cost increases D. Average cost reaches its minimum
17.If average fixed cost and total cost amount be 20 and 400 units respectively,
what will be the average variable cost of the firm if 10 units of output is
produced?
A. 200 B. 600 C. 20 D. 40
Answer question 18 and 19 using the following information: Consider the short run
1 2
cost function of a firm: AC= Q −5Q+ 9, where AC And Q are average total cost and
3
output respectively.
18.What is the average fixed cost of the firm?
A. 3 B. 9 C. 0 D. 9/Q
19.At what output level the firm minimizes its marginal cost?
A. 9 B. 1 C. 8 D. 10
20.Considering short run production function, when MP rises
A. AP equals MP C. AP also rises
B. TP declines D. TP reaches maximum
21.When the expenditure approach is used to measure GDP, the major components
of GDP are
A. Consumption, investment, indirect business taxes, and depreciation.
B. Employee compensation, rents, interest, and self-employment income
C. Employee compensation, corporate profits, and depreciation
D. Consumption, investment, government consumption, and net exports
22.Utility of every additional unit is called-
A. Marginal utility C. Total utility
B. Average utility D. None of these.
23.Which one of the following is the characteristics of perfectly competitive market?
A. Homogenous product C. Interdependence among firms
B. Differentiated product D. Blocked entry
Part two: write true if the statement is correct and false if it is incorrect
1. A higher indifference curve represents a higher level of satisfaction.
2. The standard Indifference curves are convex to the origin to represent constant
marginal rate of substitution between commodities
3. A rational producer will always operate in diminishing returns (Stage II)
4. MC curve cuts AC curve at its minimum point
5. The actual expenditure incurred by a firm to purchase or hire inputs it needs in
the production process is called implicit cost
Workout part
1. Suppose the average revenue of a short run perfectly competitive firm is 2 and
its total cost function is given as: C=Q 3−4 Q 2 +6 Q+10 then,
A. Find the profit level at the equilibrium point and identify whether the firm
makes positive profit, normal profits or incurs loss
B. What price level is needed for the firm to stay in the market?