Economics Mid Exam – Bahir Dar University

Part I: Say True if the statement is correct and say False if the statement is wrong

1. Under perfectly competitive market, some firm can gain any competitive advantage over the other firm through advertising their products

2. At stage one, each additional unit of a variable input contributes larger than the average

3. Macroeconomics analyzes the economic behavior of individual decision-making unit at a disaggregate level

4. The demand curve of a monopolist is downward as its price taker

5. A firm incurs loss whenever price is less than average cost

6. If Japanese investor owns an apartment building in Addis Ababa and earns rental income, the rental income he/she receives is part of Ethiopian GDP

7. During cost push inflation supply for goods and service is exceed the demand for goods and service

8. At the shut-down point, a firm is indifferent between production and exit out of the market

Part II: choose the best one among the alternatives

1. Suppose a firm sells its output on a market that is characterized by many sellers and buyers, a differentiated product, and unlimited long-run resource mobility, then the firm is:

A. A monopolist
B. An oligopolistic 
C. A perfect competitor
D. A monopolistic competitor

2. Which of the following is correct?

A. Manual labor is a good example of fixed input
B. Production is the process of transforming outputs into inputs
C. Long run production theory represents length of time period
D. The law of diminishing marginal return operates under fixed technology

3. Which of the following is correct at Stage I in short run production function?

A. The fixed resource is exhaustively used
B. The variable resource is underutilized
C. It’s the best place to produce as a rational producer
D. The fixed resource is underutilized

4. The current Ethiopian telecommunication market structure is a best example of:

A. Monopoly
B. Duopoly
C. Perfect competition
D. Monopolistic competition

5. The first order condition of profit maximizing rule in any market can be represented by:


6. Among the following measurements, which measurement shows an income received by factors of production?

A. Net domestic income
B. Net national income
C. National income 
D. Personal income

7. Given Q = 10L — 2L2  the MP of the 2nd unit and APL of 2 units or labor respectively are equals to:

A. 6 and 2
B. 8 and 4
C. 4 and 4
D. 2 and 6

8. When inflation is a result of an increase in the price of factors of production, the result is:

A. Demand pulls inflation
B. Cost push inflation
C. Stagflation
D. None

9. The type of unemployment that mostly occurs during recessions and depressions is called:

A. Frictional unemployment
B. Cyclical unemployment
C. Structural unemployment
D. Underemployment

10. Suppose the Ethiopian government wants to reduce inflation, which measurement should be taken?

A. Increase expenditure
B. Increase interest rate
C. Reduce reserve ratio
D. Reduce tax

11. Which of the following is not a source of monopoly market?

A. Ability to produce at a lower per unit cost
B. Control over key raw materials
C. Ownership of patent right
D. Taste and preference of consumers

12. Under perfect competitive market structure the horizontal demand curve indicates that:

A. A single market price at which the firm can sell any amount of the commodity demanded
B. The average revenue and marginal revenue of the firm
C. A single market price at which the buyer can buy any amount they want
D. All of the above

13. The marginal revenue of a monopolist is:

A. Equal to marginal cost
B. Less than marginal cost
C. Equal to product price      
D. Less than product price

14. Whenever MC curve is above AVC curve:

A. AVC must be falling
B. AVC must be raising
C. AVC reaches minimum
D. AVC reaches maximum

Part III: – workout (put the final answers only) 

1. Suppose that the short-run production function of certain cut-flower firm is given by:

Q = 4KL — 0.6K2 — 0.1L2

Where Q is quantity of cut-flower produced, L is labour input and K is fixed capital input (K=5)

Based on the above information, answer the following questions

A. At what level of labour does the total output of cut-flower reach the maximum?

B. What will be the maximum achievable amount of cut-flower production? 

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