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34. Combination of capital (K) and labor (L) lies to the right of the firm’s cost line. It means that the combination isA: Insufficient, given the budgetB: UndesirableC: Inferior to the points within the contrast in terms of productionD: Unattachable, given the budgetE: Efficient, given the budget35. Every point that lies to the right of the consumer’s budget constraint isA: Unattainable, given the current incomeB: UndesirableC: Inefficient, given current incomeD: Inferior to the points within the constraint in terms of utilityE: Insufficient, given current production36. Which of the following does not cause a shift in the demand curve.A: Changes in the price of related goodsB: Changes in the consumer patternsC: Changes in the price of the goodsD: Changes in the personal preferencesE: Changes in the income of buyers37. Market equilibrium occurs whenA: Quantity demanded equals quantity suppliedB: The price which sellers ask for goods is less than the price consumers pay for those goodsC: A shortage existsD: Demand is greater than supplyE: Demand is less than supply38. One of the reasons for the existence of natural monopoly isA: Economies of scaleB: Lower fixed cost requirementC: Diminishing marginal rate of productivityD: Formation of cartelsE: Downward sloping demand curve39. All the major airlines have been experiencing declining sales revenues as fares are increased. From these, it can be inferred thatA: The demand for air travel is perfectly inelasticB: The demand for air travel is relatively inelasticC: The demand for air travel is relatively price elasticD: The demand for air travel is unitary price elasticE: Air travel is an inferior good40. Debtweight loss refers toA: The transfer of resources from buyers to sellersB: The increase in producer surplus that results from a taxC: The decrease in consumer surplus that results from a taxD: The decrease in government revenue that occurs when a tax rate is increased beyond its optimumE: The decrease in total surplus that result from a tax41. An entrepreneur wants to maximize profits without affecting his price. He must produce an output whereA: Marginal cost is equal to the average variable costB: Average variable cost is minimumC: Average fixed cost is minimumD: Average cost is minimumE: Marginal cost is minimum42. Which of the following industries most closely approximates to the perfect competitive modelA: CigarettesB: News paperC: Home appliancesD: AutomobileE: Wheat forming43. Binica, a brand of tooth paste, which was declining in sales decided to undertake advertising expenses. The advertising expenses are indicated by the shift inA: MC curve to the leftB: MR curve to the leftC: MR curve to the rightD: AC curve to the leftE: MC curve to the right44. In economics it is generally assumed that the MAIN objective of firm is toA: Maximize the company share price on the stock marketB: Employ more workersC: Reduce price and satisfy as many consumers as possibleD: Maximize total profits45. The demand for a product will tend to be elastic whenA: It is quickly consumedB: It has few close substitutesC: It is subjected to a habitual consumptionD: The purchase of the product takes up a high proportion of a consumer’s budget46. A consumer can maximize his total utility if he allocates his money income so thatA: Elasticity of demand is the same for all the products purchasedB: Gain in marginal utility from the last rupee spent on each product purchased is the sameC: Total utility gained from each product consumed is the sameD: Marginal utility of each product consumed is zeroE: Marginal utility of each product consumed is equal47. the subject matter of micro economics includes the study ofA: Particular market for a given commodityB: An individual consumerC: Operation of a firmD: All of the above48. Which of the following costs should not be considered while making decisions in the short runA: Implicit costsB: Marginal costsC: Opportunity costsD: Variable costsE: Sunk costs49. the cross price elasticity of demand for the products reko and veko is 8. It implies that reko and veko areA: IndependentB: Inferior goodsC: ComplimentsD: SubstitutesE: Luxury goods50. if the price elasticity of demand for a butter is 2, a 1% decrease in the price of butter willA: increase the quantity demanded by 2%B: increase the quantity demanded by 0.5%C: reduce the quantity demanded by halfD: double the quantity demanded51. when a competitive firm is in equilibrium in the long run, its output is such thatA: total sales are maximumB: total profits are maximumC: costs of unit of output are minimumD: total costs are minimumE: profit per unit of output is maximum52. a normal good can be distinguished from an inferior good because a normal good hasA: a negative income elasticity of demandB: a positive income elasticity of demandC: a positive cross price elasticity of demandD: a positive price elasticity of demand53. the demand curve facing a monopoly firm is A/anA: Rectangular hyperbotaB: Upward slopingC: downward slopingD: intermediateE: horizontal straight line54. the policy of charging different slab rates for power consumption for different purposes by a power distribution company describesA: product differentiationB: differential elasticity of supplyC: price discriminationD: inelastic demand of consumersE: differential cross elasticity of demand55. an industry’s supply curve is more likely to be elastic ifA: Producers have low levels of stocksB: new firms are unable to enter the marketC: there are shortages of skilled labor needed by the firm to increase productionD: firms are operating at below full capacity56. the opportunity cost to society of constructing a new motor way would beA: the other goods and services which labor employed constructing the roadB: the financial cost of the roadC: the other goods and services that would be produced if the motor way were not billedD: the loss of farm land and natural habitat used in order to build the roadE: reduce price and satisfy as many consumers as possible57. economics is primarily concerned with the study ofA: how new wants and economic resources are producedB: allocating scarce resources to satisfy unlimited wantsC: determining how the government should allocate resourcesD: how to make more effective use of resources through reducing wants58. you can buy any amount of rice at Rs.15 per kg in the local market. The supply curve for rice isA: downward slopingB: horizontalC: data insufficientD: upward slopingE: vertical59. when a proportionate change in input combination causes the same proportionate change in output, the returns of scale is said to exhibitA: increasing returnsB: constant returnsC: decreasing returnsD: infinity returnsE: negative returns60. marginal revenue is always positive when elasticity of demand isA: unityB: zeroC: greater than 1D: less than 1E: infinity61. which of the following is a benefit of first degree price discrimination by a monopolistA: a lower marginal cost than that incurred by a single price monopolistB: a larger output than a single price monopolistC: a larger consumer surplus than under single price monopolyD: smaller profits than those earned by the single price monopolistE: zero economic profits in the long run62. for rohan, both coke and pepsi are perfect substitutes. The price of each bottle of coke and pepsi is Rs.10. which of the following is true is pepsi increases price to Rs.20 per bottleA: rohan will buy only cokeB: rohan will buy twice as much pepsi as cokeC: rohan will buy twice as much coke as pepsiD: no conclusion can be drawn unless utility function of rohan is knownE: rohan will buy equal amounts of pepsi and coke63. a kinked demand curve occurs in an oligopoly when a firmA: increases its price and others follow itB: increases its price and others do not follow itC: decreases its price and others follow itD: decreases its prices and others do not follow itE: both B and C of the above64. a firm will shut down its operations in the short run ifA: total revenue falls short of total costsB: total fixed costs exceed its total variable costsC: it incurs lossesD: fixed costs exceed its revenueE: variable cost exceed its revenue65. which of the following reasons does not lead to a monopolyA: ownership of a strategic raw materialB: existence of numerous buyersC: technological advantagesD: possession of patent rights for a productE: government licensing66. expansion and contraction of demand are referred to as theA: variation in demandB: change in demandC: both of the aboveD: none of the above67. which of the following is not a feature of a monopolistically competitive marketA: relative freedom of entry and exit of firmsB: non price competitionC: product of a firm is not a perfect substitute to that of another firmD: homogeneous productE: relatively large number of firms68. which of the following curves is called planning curveA: long run average variable cost curveB: long run average total cost curveC: long run total cost curveD: long run marginal cost curveE: long run average fixed cost curve69. which of the following will most likely increase the demand for a particular goodA: a decrease in incomeB: a decrease in the number of consumers purchasing substitute productsC: a fall in the price of substitute goodsD: an increase in time required to purchase complimentary goodsE: a decrease in the price of complimentary goods70. utility is expressed asA: the power of commodity to satisfy wantsB: the quality of a commodityC: the quantity of a commodityD: the durability of a commodityE: the desire for a commodity71. the production of a tile manufacturing firm is at the minimum point of its average cost curve. The firm isA: operating at constant costsB: operating under diminishing costsC: making optimum use of its capacityD: operating under excess capacityE: operating under increasing costs72. which of the following situation does not lead to price discriminationA: differences in elasticity of demandB: difference in elasticity of supplyC: distanceD: nature of the goodE: preference of the buyer73. a firm realizes least cost in production, if it substitutes the factors until theirA: prices are equalB: marginal physical product to the factor price ratio is equal for all factor inputsC: marginal physical products are equal to zeroD: marginal physical products are equalE: marginal physical products are equal to their factor prices74. the market demand curve for overseas cruises will not shift when there is aA: increase in the price of land based package holidays (a substitute for cruises)B: successful advertising campaignC: price in consumer’s real incomeD: fall in the price of a cruise in the brochures75. according to the law of supplyA: if the price is low any firm will sell the productB: anything that is supplied will be purchased by consumersC: the higher the price, the lower the quantity suppliedD: the higher the price, the larger the quantity supplied76. in 2001, export prices of coffee in ethiopea fell by half – from 79 cents per pound in 2000 to 39 cents. If the demand for ethiopean coffee is assumed to be price inelastic, the fall in price will causeA: no change in total revenueB: a rise in the total revenue of coffee growersC: an increase in the profitability of growing coffee in ethiopeaD: a fall in the total revenue of coffee growers77. which of the following is true with respect to marginal costA: cost that varies with the output levelB: total fixed cost per unit of outputC: change in the total cost on account of an additional unit of outputD: cost of all inputsE: total variable cost of an output78. an entrepreneur wants to maximize profits without affecting his price. He must produce and output whereA: marginal cost is equal to the average variable costB: average variable cost is minimumC: average fixed cost is minimumD: average cost is minimumE: marginal cost is minimum

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