ADAMA SCIENCE AND TECHNOLOGY UNIVERSITY

School of Business and Economics, Department of Economics

Introduction to Economics Final Exam for 2nd and 3rd year Engineering students

(Econ 101)

Time allocated: 2:00 hrs.

Total marks: 40%

Date :02/02/2013

Write your:

Name: _________________________

I.D. No:______________________

Group: ______________________

Instructions:

Write your Name and I.D. No. on each page of your answer sheet.

Cheating is forbidden.

Switch off your Cell Phone.

Do not start until you told to do

 Part I: Say true if the statement is correct and false if the statement is incorrect
1. Economic profit is never higher than accounting profit.
2. As output increases AFC continuously decreases and can become zero but never becomes
negative.
3. When price is less than the minimum of AVC curve, TR is greater than TVC.
4. In the short run, we study returns to an input, but in the long run we study returns to scale
5. Macroeconomics is the study of the individual decision making units’ behaviour.
Part II: Matching
A B
1. Explicit cost a. Point of diminishing average return
2. Stage I b. MP>AP
3. MP=AP c. rational stage of production
4. Implicit cost d. Wage of workers
5. Stage III e. MP is positive but declining
f. Point of diminishing marginal return
g. Rent of the owners land
h. Fixed input is over utilized
Part III: Choose the best answer from the given alternatives for each question

1. All are the properties of conventional isoquant curves except:

A. They are convex to the origin
B. They don’t intersect each other
C. They have positive slope
D. Isoquants far from the origin represent higher output
E. None of the above

2. One of the following is not true about utility

A. It is a technical term which represents amount of satisfaction derived from
consumption
B. Utility is subject to individual’s own need
C. Utility means usefulness
D. Utility varies from time to time and from place to place
E. None
3. In consumer’s utility theory when does the saturation point attained?
A. When the law of diminishing marginal utility starts to operate
B. When total utility reaches maximum
C. When marginal utility reaches maximum
D. When marginal utility becomes zero
E. A & C
 F. B & D
4. All combinations of goods generating equal total utility are shown by:
A. Indifference curves.
B. Production possibilities frontiers.
C. Budget line
D. Consumer preference gradients
5. Given two consumption goods A and B with prices Pa and Pb respectively. According to
Indifference Analysis, consumer equilibrium is achieved when:
A. MUa/Pa = MUb/Pb.
B. MRSab = Pa/Pb on the budget line.
C. consumption corresponds to a tangency between the highest attainable indifference
curve and a budget line.
D. All of the above.
6. The short run is
A. Less than a year.
B. Three years.
C. However long it takes to produce the planned output.
D. A time period in which at least one input is fixed.
E. A time period in which at least one set of outputs has been decided

7. All are correct about the relationship between marginal and average product of a variable
input except;
A. When MPL is above APL, APL rises
B. When APL is below MPL, MPL rises
C. When MPL is below APL, APL falls
D. When APL is above MPL, MPL falls
E. None of the above
8. In a production process, all inputs are increased by 10%; but output increases by 15%. This
means that the firm experiences
A. Decreasing returns to scale.
B. Constant returns to scale.
C. Increasing returns to scale.
D. None
10. The productivity per each single unit of output is measured by
A. Average product
B. Marginal product
C. Total product
D. Average revenue
E. None
11. An example of an implicit cost of production would be
E. The cost of raw materials for producing bread in a bakery
F. The cost of delivery truck in a business that rarely makes deliveries
G. The income an entrepreneur could have earned working for someone else
H. All of the above
12. Assume that the 4th worker added to 3 workers causes output to increase from 60 to 66.
Which of the following is true?
A. The average product of 3 workers is 22
B. The MP of the 4th worker is 6
C. The average product of 4 workers is 15
D. All of the above
13. Suppose the firm faces cost function given by C(Q)=0.1Q2+Q+10, the AFC and the ATC of
producing 2 units of outputs are _____and _____respectively
A. 1.5 & 7.2 B. 5 & 3.5 C. 5&6.2 D. 2 & 3.5
14. One of the following costs is not U shaped
A. AVC
B. AFC
C. AC
D. MC
E. None
15. In which of the following situations will a perfectly competitive firm earn economic profits?
A. MR>AVC C. ATC>MC
B. MR>ATC D. ATC>AR E. AR>AVC
16. To the economist total cost includes:
A. Explicit costs and implicit costs
B. Neither implicit nor explicit costs
C. Implicit but not explicit costs
D. Explicit but not implicit costs
17. one of the following is not true about the short run cost measurements
A. When production is zero the TC=TFC.
B. When the AVC is minimum, the AVC= MC.
C. When the MC>ATC, the ATC is rising
D. The AVC and MC are inverted (mirror) images of AP and MP respectively
E. None
18. One of the following can’t be a reason for the emergency of monopoly
A. Ownership of strategic raw materials
B. Huge financial requirement
C. Exclusive knowledge of techniques of production
D. Legal restriction of patent and copy right e) None
 19. Which of the following is true about efficient region of production?
A. In short it prevails marginal product of variable input is greater than zero and slope of
marginal product of variable input is less than zero
B. In long run it prevails when marginal products of all variable inputs is positive but
decreasing
C. In short run it prevails marginal product of variable input is greater than zero and
slope of marginal product of variable input is positive
D. A and B
20. A market structure in which there is no barrier on new firms is
A. Oligopoly
B. Monopoly
C. Monopolistically competitive
D. A and B

21. Which of the following is not the characteristic of perfectly competitive market?
A. Downward sloping market demand curve
B. Perfectly elastic demand curve for each individual firm
C. Each firm determines price for its product
D. Many firms each supplying a small fraction of the market
E. A and C
22. When does the point of maximum profit is attained for competitive firm?
A. When positive difference between total revenue and total cost gets maximum
B. When the difference between MR and MC zero as necessary condition
C. When the difference between MR and MC is positive
D. When the difference between TR and TC is zero
E. A and B F. C and D
23. Currently because of economic recession unemployment in Europe is very high. Such type of
unemployment is known as
A. Structural
B. Cyclical
C. Seasonal
D. Frictional
E. None
24. Which of the following is wrong?
A) If net factor income is negative, always GDP is greater than GNP
B) GDP is quantity of all goods and services produced in a country in a given year
C) GDP measured at base year price is called real GDP
D) GDP deflator includes only those goods domestically produced
E) none
25. What does natural rate of unemployment represents?
A) Zero unemployment
B) Unavoidable unemployment
C) Unemployment occurring from short run fluctuation of the economy
D) B and C
E) None
26. which of the following is NOT true about the redistribution effect of inflation
A. Creditors are benefited while Debtors are harmed.
B. Fixed income earners are benefited
C. Debtors are benefited while Creditors are harmed.
D. A and B
27. Macro economics is concerned with
A. General price level
B. Full capacity production
C. Income distribution among individuals
D. All
28. Which of the following would be included as a member of the labor force?
A. A full time college student
B. A recent high school graduate looking for a first job
C. A homemaker contributing 15 hours per week as a volunteer worker in a hospital
D. A retired school teacher collecting social security benefits
29. Which of the following is Not the goal of Macroeconomics
A. Full employment
B. Stable price level
C. Economic growth
D. None
30. All are examples of fixed inputs except
A. Buildings
B. machineries
C. managerial personnel
D. raw materials
Part IV: Explanations questions
Instruction II: Explain each question briefly

1. Explain the difference between economic costs and accounting costs

2. Explain the difference between GNP and GDP
3. List and explain types of unemployment which are considered as natural unemployment
4. Show a perfectly competitive firm that earns a normal profit in the short run equilibrium by
Using graph.
5. Why will a firm in a perfectly competitive market choose not to charge a price either above
or below market price?

Part IIV: Work Out questions

Instruction II: select and Do only two of the following questions keeping all the necessary
steps
1. Given production function in the short run as: Q  50 L  2 L  L , find
2 3

A. the marginal product

B. The average product
C. Find total product at employment level L=5
D. In which stage the firm is operating at employment level L=6
Or
2. Suppose the cost function is C (q)=4q2+16. Find variable cost, fixed cost, average cost,
average variable cost, and average fixed cost. ( 5 points )

3. Suppose a firm has a cost structure given by TC = 10 q – 4q2 + 4 q3 and the market price of
the commodity is $ 10
a. Determine the profit maximizing output
b. Determine the breakeven price
c. What minimum market price the firm needs to continue production.
Or
4. Assume the consumer’s utility function from consumption of good A(Q A) and good B (QB) is
given as U(QAQB) = 2QAQB with market price of QA and QB as PA=4 birr and PB=6 birr
respectively. If the consumer’s utility maximization point is attained when = answer
the following (Not for Architectural students)
a) What amount of QA and QB should the consumer consume to maximize utility if the
b) consumer’s income is birr 48?
c) What is the value of maximum utility?
Answer sheet

Part I part II

1. ____ 1. ____
2. ____ 2. ____
3. ____ 3. ____
4. ____ 4. ____
5. ____ 5. ____

part III

1 ________ 11. _______ 21. _______

2 ________ 12. _______ 22. _______
3 ________ 13. _______ 23. _______
4 ________ 14. _______ 24. _______
5 ________ 15.________ 25._______
6 ________ 16.________ 26._______
7 ________ 17.________ 27._______
8 ________ 18.________ 28._______
9 ________ 19.________ 29._______
10 ________ 20.________ 30._______