Economics Worksheet -ExamClass (11) In consumer equilibrium a consumer equates_________

INTRODUCTION TO ECONOMICS A/ Total utility from each good B/ Marginal utility from each good
INSTRUCTION I: MULTIPLE CHOICE QUESTIONS (CHAPTER- 3, 4, and 5). C/MU per unit of money spent on each good D/ TU per unit of money spent on each good
(1) According to the law of diminishing marginal utility: (12) Suppose a particular consumer has 24 Birr to be spent on two goods, A and B. The unit
A/ Utility is at a maximum with the first unit price of good A is 2 Birr & unit price of B is 3 Birr. The marginal utility (MU) is given as:
CH- 3, 4 Marginal Utilities
B/ Increasing units of consumption increase the marginal utility Quantity
C/ Marginal product will fall as more units are consumed Demanded
D/ Total utility will rise at a falling rate as more units are consumed What is the total utility from purchasing 3
1 20 24
(2) If Marginal Utility is zero: units of good A?
2 18 21
A/ Total utility is zero B/ Total utility is maximized 3 16 18 A/ 54 B/ 38
C/ An additional unit of consumption will decrease total utility 4 14 15
C/68 D/ 70
D/ An additional unit of consumption will increase total utility 5 12 9
(3) An increase in INCOME will cause: 6 10 3
(13) (Refer Question 12) What is the combination of the two goods A and B that gives
A/ A rotation of the budget curve B/ Movement along a budget curve
maximum utility to the consumer respectively? A/ 6; 4 B/ 3; 1 C/ 4; 2 D/ 5; 3
C/ An inward shift of the budget curve D/ An outward shift of the budget curve (14) (Refer Question 12) The total utility when all income is spent on goods A and B is:
(4) For a rational consumer who has to choose between two goods in the context of budget A/ 92 B/78 C/168 D/None
constraints, the price change of one of the goods, ceteris paribus, will determine: (15) If a consumer`s budget line between meat and vegetables intercepts the vertical axis at 100
A/ a parallel shift of the budget line to the left; B/ a change in the slope of the budget line; units of meat and the horizontal axis at 100 units of vegetables.
C/ no change in the budget line; D/ a parallel shift of budget line to the right. A/ The consumer budget line equals Birr 100
(5) The indifference curve means: B/ The price of a unit of meat equals that of a unit of vegetables
A/ equal consumption of two goods; C/ The two goods have different prices
B/ equal utility from the consumption of two combinations of goods; D/ The consumer pays more for a meat than for a unit of vegetables
C/ equal consumer income; D/ equal prices of the goods consumed. (16) The marginal rate of substitution is equal to the
(6) Consumer equilibrium occurs when A/ slope of consumer`s indifference curve B/ slope of consumer`s budget line
A/ The budget line is just tangent to the higher indifference curve C/ Area under consumer`s indifference curve D/ Area under consumer`s budget line
B/ Two indifference curve intersects (17) How is marginal utility measured?
C/ The higher indifference curve on the indifference map is attained A/ Total utility divided by price B/ The slope of total utility curve
D/ The budget constraint & the indifference where intersects C/ Total utility divided by total number of units D/ The inverse of total utility
(7) The points located at the intersection of the budget line with the coordinate axes mean: (18) The period of time for which all factors of production and technology are variable is-
A. the consumer does not spend all his income; A) short run B/ long run C/ infinite run D/ None
B. the consumer spends all his income for only one good; (19) The cost of the firm that paid directly in money are its
C. the consumer spends absolutely nothing; A/ Implicit cost B/ Economic cost C/ Explicit cost D/ Opportunity cost
D. these are points impossible to reach by the consumer. (20) Explicit costs differ from implicit costs in that they are
(8) Marginal utility for a good is computed as A/ Usually less than implicit costs
A/ Quantity consumed divided by total utility B/ Total utility divided by quantity consumed B/ More important than implicit costs
C/ The change in quantity consumed divided by total utility C/ Often non-paid opportunity cost while implicit costs are paid in money.
D/ The change in total utility divided by the change in quantity consumed. D/ Paid in money, but implicit costs are often non paid opportunity cost.
(9) The condition for equilibrium of the consumer is (21) If total product is at a maximum, then
A/ = B/ = C/ = D/ A and B A) Marginal product must be greater than zero and must be falling.
B) Marginal product must be falling and be equal to zero.
(10) If the marginal utility per dollar of good X exceeds the of Y, a consumer could
C) Average product must be rising and must lie above marginal product.
increase utility by_______________ D) Average product must be falling and be equal to zero.
A/ Consuming more of good X and less of good Y E) Average product must equal marginal product.
B/ Not changing the consumption of good X and good Y consumed (22) A producer will NOT choose an input level from region III of production stage b/c;
C/ Consuming more of good Y and less of good X A/ Marginal product is still positive B/ Average product is declining
D/ Consuming less of both goo X and Y C/ Marginal product is negative D/ All of the Above
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(23) Suppose that the hypothetical firm is trying to maximize output = 12 subject to the
budget constraint 5 + 40 = 900. What will be the level of labor input and capital input (39) The short run supply curve of the perfectly competitive firm is given by
respectively at which the total output of the firm reaches the maximum? A. The rising portion of its MC curve over and above the shutdown point
A/ 15, 60 B/ 70, 30 C/ 30, 70 D/ 60, 15 CH-5 B. The rising portion of its MC curve over and above the break-even point
(24) Which one is NOT true about the relationship between Production (Q), Average C. The rising portion of its MC curve over and above the AC curve
product(AP), Marginal cost(MC), Average cost(AC) and Marginal product(MP)? D. The rising portion of its MC curve
A/ If MC=AC, then MP=AP B/ If AP>MP, then MC<AC (40) For a perfectly competitive firm, the optimum level of output is given by the point where
C/ If MC<AC, then AC is reduced by increasing Q A. MR equals AC C. MR equals MC
D/ If MC>AC, then AC is increased by increasing Q
B. MR exceeds MC by the greatest output D. MR equals MC and MC is rising
(25) Which of the following is an implicit cost to a business?
A/ The costs that are associated with factors of production that can be varied in the short run (41) In a perfectly competitive market structure
B/ The forgone opportunity for the business to engage in the current activity A. Producers are price makers, while consumers are price takers
C/ Any and all costs to the firm that are termed accounting costs D/ None of the above B. Both producers and consumers are price takers
(26) Total cost (TC) is equal to__A/ TFC + TVC B/ MC + AC C/ TFC + MC D/ TFC + AC C. Neither producers nor consumers are price takers
(27) What is the total cost of producing zero units in the short-run? D. Both producers and consumers are price makers
A/ Zero B/ Fixed cost C/ Variable cost D/ Marginal cost
(42) Homogeneity of product is characteristic of
(28) If a firm produces nothing, which of the following costs will be zero?
A/ TFC B/ TVC C/ TC D/ None A. Monopoly B. Oligopoly C. Perfect competition D. None of the above
(29) When MC is falling, MC is A/ Below AC B/ Above AC C/ Equal to AC D/ All (43) In monopoly, the major sources of barriers to entry are:
(30) Which of the following stage is known as law of diminishing returns A. Legal restriction B. Control over key raw materials C. Patent right D. All of the above
A/ Stage I B/ Stage II C/Stage III D/None of these. (44) If there are many firms in an industry producing goods that are similar but slightly different:
(31) MPL for nth unit is equal to A. Perfect competition. B. Monopolistic competition. C. Oligopoly. D. Monopoly.
A/ TPn – TPn-1 B/ TPn – TPn+1 C/ APn – APn-1 D/ TPn + TPn-1 (45) Large cities typically have many drug stores which have different qualities of service and
(32) All are assumptions of Ordinal Utility theory, Except
selections of product. The drug store market in big cities can best be classified as:
A/ Utility is cardinally measurable. B/ Diminishing MRSxy C/ Consistency D/ None
(33) Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount A. A competitive market. B. Monopolistic competition. C. Oligopoly. D. Monopoly
of machinery. As the firm hires additional workers, one would expect the marginal product to (46) A major difference between monopoly and monopolistic competition is:
A/ fall initially, but eventually rise B/ rise initially, but eventually fall A. One maximizes profits by setting MR equal to MC, and the other does not.
C/ rise consistently due to diminishing return D/ rise consistently due to specialization B. The number of firms in the market.
(34) In the short run, which costs must continuously decrease as output produced increases? C. One type of firm has market power, and the other does not.
A/ Total variable cost B/ Total fixed cost C/ Average total cost D/ Average fixed cost D. One has a downward-sloping demand curve, and the other does not.
(35) If the average variable cost of producing 5 units of good is $ 100 and the average variable
(47) Which of the following characterizes monopolistic competition?
cost of producing 6 units is $ 150, then marginal cost of increasing output from 5 to 6 units is
A/ $50 B/ $250 C/ $300 D/ $500 E/ None A. Price leadership C. Product differentiation B. Price discrimination. D. Economies of scale.
(36) The following table shows firm`s short run total cost for different levels of output. (48) Product differentiation refers to:
Quantity(tons) Total cost(Birr) A. Features that make one product different from competing products in the same market.
0 1000 The variable cost per unit at an output level of 20 tons is: B. Different prices for the same product in a certain market.
10 1200 A/ Birr 1000 B/ Birr 70 C. The selling of identical products in different markets.
20 1400 C/ Birr 400 D/ Birr 20 D. The charging of different prices for the same product in different markets.
30 1600 (49) Perfect competition and monopolistic competition are best distinguished by:
40 1800 A. The degree of product differentiation. B. The long-run economic profits that are expected.
(37) Which one of the following is NOT CORRECT? Output(kg) Total cost(Birr)
0 20 C. The number of firms in the market. D. The ease of entry and exit.
A/ The average fixed cost of producing 3kg is 6.67 Birr
1 28 (50) Total economic profit is
B/ The marginal cost of producing the 6th units is 8 2 35 A. Total revenue minus total opportunity cost. B. Marginal revenue minus marginal cost.
C/ The fixed cost is 20 Birr 3 41
C. Total revenue divided by total cost. D. Marginal revenue divided by marginal cost.
D/ The total cost of producing 6 units is 60 4 46
E/ All of the above 5 52
……………………………………… ……………………………………….
6 60
(38) The Marginal Cost curve intersects the Average Cost curve at_______ NOTE: THESE QUESTIONS ARE REVIEW EXERCISES!!
A/ Its maximum value B/ its minimum value C/ the X-axis D/ several points

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 INSTRUCTION II: WORKOUT (Show All Necessary Steps) si
(1) Consider a consumer of goods A and B. PA=2 and PB=6 and income is 70 Birr. Then find the ro p ers a : :
optimal combination of good A and B and TU at this level of output. ________________________________ _______________________
Total Utilities (2)________________________________ _______________________
Quantity ________________________________ _______________________
________________________________ _______________________
1 24 120
2 46 230
________________________________ _______________________
3 66 326 (6)________________________________ _______________________
4 84 406 ________________________________ _______________________
5 100 470 ________________________________ _______________________
6 114 518 ________________________________ _______________________
7 126 560 ________________________________ _______________________
8 136 596 Answers:
9 144 626  Multiple Choices:
10 150 650 1)______ 11)______ 21)______ 31)______ 41)______
(2) Assume a particular consumer has 20 Birr to be spent on two goods, X and Y. The unit price 2)______ 12)______ 22)______ 32)______ 42)______
of good A is 4 Birr and the unit price of B is 6 Birr. Based on the given marginal utility (MU) 3)______ 13)______ 23)______ 33)______ 43)______
she gets from consumption of the goods, calculate each of the following. 4)______ 14)______ 24)______ 34)______ 44)______
a. The level of outputs of goods X and Y that maximizes Total utility 5)______ 15)______ 25)______ 35)______ 45)______
b. Total utility a consumer gets at equilibrium point
6)______ 16)______ 26)______ 36)______ 46)______
c. If a consumer spends his entire income on good X, then find number of good X he
7)______ 17)______ 27)______ 37)______ 47)______

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would buy and Total Utility?
8)______ 18)______ 28)______ 38)______ 48)______
Marginal Utilities 9)______ 19)______ 29)______ 39)______ 49)______
Quantity
10)______ 20)______ 30)______ 40)______ 50)______
1 45 70

la
2 40 60  Workout:
3 35 50
4 30 40

C
5 25 30
(3) Suppose the Short Run Cost Function of a firm is given by:
= − 2 + 60 + 100, then calculate each of the following?

am
i. Drive the expression for TVC, TFC, AVC, AFC, AC and MC
ii. Find the level of outputs that minimize the AVC and MC , AND then find the
minimum value of AVC and MC
(4) Fill up the following costs from the given table-
UNITS TFC TVC TC MC AFC AVC ATC
1 100 50
Ex
2 40
3 30
4 270
5 70
(5)

5 6