Name___________________________________
I.D No________________________________
1 2 3 4 5 6 7 8 9 10
1. The firms can earn an only normal profit under ___ competition.
A. Perfect
B. Imperfect
C. Less competitive market
D. All
2. Under perfect competition demand curve is a ___ line.
A. Horizontal
B. Vertical
C. ‘’ U’’ shaped
D. none
3. Oligopoly is a type ________of market A______in the industry
A. perfect, few firms
B. imperfect, few firms
C. perfect, Many firms
D. imperfect, Many firms
4. Total production will be Maximum in the short run when
A. Average production is Maximum
B. Marginal production is Maximum
C. Average production is equal to Marginal production
D. Marginal production is zero
5. An isoquant represent all those input combination which are capable of producing
A. different level of Out put
B. Same level of output
C. Greater output with less combination of input
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D. Aand B only
6. . If total cost is 150 birr at zero level of output in the short run, then what will be the
value of Fixed cost
A. 300 Birr
B. 250 Birr
C. 400 Birr
D. 150 Birr
7. All of the following curves are ‘’U’’ shaped except
A. the AVC curve
B. the AC curve
C. the AFC curve
D. the MC curve
8. Which of the following is true about Variable cost
A. Multiplied by fixed costs
B. Costs that changes with the level of production
C. Sunk costs
D. A and B only
9. Refers to the situation where an increase in inputs results in a less-than-proportional
increase in output
A. Decreasing returns to scale (DRTS).
B. Increasing returns to scale (IRTS).
C. Constant returns to scale (CRTS).
D. ALL
10. All of the following may cause internal Diseconomies Except
A. Specialization and indivisibilities
B. Communication breakdown
C. Strikes
D. Large demand of product may increase input price
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PART TWO: ANSWER THE FOLLOWING QUESTION
1. Give examples of daily activities where the law of diminishing returns applies. ( 2 Points)
2. Explain the difference between technical and economic efficiency.( 2 Points)
3. What is meant by the three stages of production in the short run? (3 points)
4. Explain the difference between the explicit cost of buying a textbook oneconomics and
the opportunity cost, stating any assumptions. How are thesecosts relevant for the
decision to buy the book?( 2 Points)
5. Explain the Application of the following cost concepts in Decision making ( 5 points)
A. TC:
B. ATC:
C. MC:
D. Long-run cost
6. Why perfect competition is normally regarded as being ‘better’ thanmonopoly?( 2 Points)
7. What is meant by monopoly power? What factors determine the extent of this power?( 4
points)
PART THREE: WORKOUT (3 Point Each)
1. Restaurant owner has the following short-run production function:
Q = 30L _ 2L2
Where
Q= number of meals served per day, and L= number of workers.
A. When does the law of diminishing returns take effect?
B. Show the range of labour where stages I, II and III of production occur.
C. If workers can be hired for 40 Birr per day and the average meal is 6 Birr ,
how many workers should be hired?
2. A bottling plant employs three different types of labor: unskilled manual workers,
technicians and supervisors. It has estimated that the marginal product of the last manual
worker is 200 units per week, the marginal product of the last technician is 275 units per
week and the marginal product of the last supervisor is 300 units per week. The workers
earn 300Birr , 400 Birr and 500 Birr per week respectively.
A. Is the firm using the optimal combination of inputs?
B. If not, advise the firm on how to reallocate its resources.
