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AGA KHAN UNIVERSITY EXAMINATION BOARD

Principles of Economics Paper II

Time allowed: 35 minutes Marks 25

SECTION A (MCQ’S) (25 MARKS)

Note: Choose the best answer from the mcq’s given below. Each mcq carry one mark.

1)

If the number of ice creams bars demanded increases from 19 to Rs 21 when the price decreases from Rs 1.50 to Rs 0.50, then the price elasticity of demand is:

A. -5 or 5

B. -0.2 or 0.2

C. -0.1 or 0.1

D. 1

2)

If quantity demanded increases 20%, when the price drops 2%, the good is:

A. Elastic

B. Inelastic

C. Perfectly Elastic

D. Perfectly Inelastic

3)

The shape of Average Fixed Cost Curve:

A. Is flat at large output levels

B. Same as average total Cost curve

C. Same as average variable cost curve

D. Intersects the marginal cost curve at minimum

4)

Economies of Scale:

A. Occur in the short run only

B. Is only applicable for a firm in Perfect Competition

C. Occur when per unit cost falls with larger levels of output

D. Occur when the long run average cost curve is upward sloping

5)

In perfect Competition a firm will experience loss if:

A. MC<ATC

B. MR>ATC

C. MC=ATC=MR=Price

D. Price<ATC

6)

When a firm operates under conditions of Perfect Competition, Marginal Revenue is equal to:

A. Price

B. Total Revenue

C. Average Fix Cost

D. Average Variable Cost

7)

A firm experiencing loss, will continue production in the short run if the price is at least equal to:

A. Marginal Cost

B. Average Fix Cost

C. Average Variable Cost

D. Average Total Cost

8)

A monopolist will produce the output level where MR=MC and will charge a price which is determined by the:

A. Marginal Cost Curve

B. Marginal Revenue Curve

C. Demand Curve

D. Average Total Cost Curve

9)

Net National Product is equal to:

A. GNP + Depreciation

B. GNP - Depreciation

C. Personal Income – Direct Taxes

D. GNP – Subsidies

10) National Income does not include:

A. Profit and Rent

B. Interest on Capital

C. Wages on Salaries

D. Transfer Payments

11) When Total Utility is maximum, Marginal Utility is:

A. Positive

B. Negative

C. Zero

D. None of these

12) A joint Stock Company usually conducts:

A. Small Scale Production

B. Medium Scale Production

C. Large Scale Production

D. None of these

13) Which of the following Is a fixed cost of production:

A. Goods distribution Cost

B. Salaries of Employees

C. Purchase of Raw materials

D. Rents of buildings

14) Elasticity of demand means:

A. Degree of sensitivity

B. Insensitivity

C. Demand

D. Supply

15) Average Total Cost is calculated by

A. Total Cost/Output

B. Total Cost/Total Inputs

C. (Total Cost/Output)*100

D. Total Inputs/Total Output

16) If Average Revenue is greater than Average Total Cost a firm earns:

A. Normal Profit

B. Abnormal Profit

C. Zero Profit

D. Loss

17) The market value of the output a Pakistani worker make in Dubai, will be added in Pakistan’s:

A. GDP

B. GNP

C. Both GDP and GNP

D. Neither GDP nor GNP

18) Laws of Returns are just the opposite of

A. Law of Equal Marginal Utility

B. Law of Supply

C. Laws of Cost

D. Law of Diminishing Marginal Returns

19) When Marginal Cost is less than the Average Cost, Average Cost is

A. Decreasing

B. Increasing

C. Remains Constant

D. Decreasing, and keeps on decreasing on all future levels of output

20) The Long Run Average Total Cost Curve is a combination or envelope of many:

A. Marginal Cost Curves

B. Long Run Average Total Cost Curves

C. Short Run Average Total Cost Curves

D. Short Run Average Fix Cost Curves

21) In Perfect Competition, the Average Revenue Curve is

A. Downward sloping

B. Upward sloping

C. Horizontal

D. Vertical

22) In Perfect Competition, a firm shuts down when,

A. ATC>AR but AVC<AR

B. ATC=AR

C. ATC>AR and AVC>AR

D. ATC=AVC=AR=MC

23) Marginal Utility is calculated from,

A. First Unit

B. Additional Unit

C. Total Units

D. Second Unit

24) National Income is the sum of:

A. Government expenditures

B. Government Tax Collections

C. Income from all the factors of production

D. All Exports and Imports

25) Which of the following is an implicit cost:

A. Wages of labours

B. Salary of managers

C. Electricity Charges

D. Owner’s Salary/Profit