Model Exit Exam for AGEC July 09, 2023

Model Exit Exam for Agricultural Economics

1. Which one of the following is INCORRECT based on short-run theory of production?
A. Whenever MP > AP, AP increase
B. Whenever MP < AP, MP decrease
C. Whenever MP < AP, MP increase
D. When TP is maximum, MP is zero
ANSWER: C
2. Choose the one that is INCORRECT answer?
A. Isoquants are convex because of MRS
B. Isoquants don’t cross each other
C. Isoquants are negatively sloped
D. Isoquants and indifference curve have different slope
ANSWER: D
3. Choose the FALSE statement about the law of variable proportion.
A. It examines the production function with fixed and variable factor
B. It is also known as law of diminishing return
C. It states that if more and more unit of the variable factor are employed the marginal productivity of the
variable factor eventually rise
D. It states that if more and more unit of the variable factor are employed the marginal productivity of the
variable factor eventually decline
ANSWER: C
4. One of the following is the characteristics of long run period
A. A period of time in which at least 1 input is fixed
B. A period of time greater than 100 years
C. A period of time in which there is no fixed factors
D. A period of time where there are both FC and VC
ANSWER: C
5. Choose the CORRECT statement.
A. Short run MC intersects short run AFC and AVC at their minimum point
B. Short run MC intersects short run AFC and ATC at their minimum point
C. Short run MC intersects short run AFC and AVC at their minimum point
D. Short run MC intersects short run ATC and AVC at their minimum point
ANSWER: D
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 Model Exit Exam for AGEC July 09, 2023

6. Which one of the following is NOT TRUE about the relationship between AP and MP?
A. MP < AP when AP is increasing
B. MP < AP When AP is decreasing
C. MP > AP when AP is increasing
D. AP < MP when AP is increasing
ANSWER: A
7. Which one of the following is DIFFERENT form the given alternatives?
A. Single seller
B. Unique product
C. Barrier to entry
D. Homogenous product
ANSWER: D
8. Which one of the following is FALSE based on short run theory of cost?
A. In short run, there are no VC because of very short time period
B. In short run, there are both FC and VC
C. FCs are independent of the level of output
D. VCs are the function of the level of output
ANSWER: A
9. Choose the FALSE statement from the given alternatives.
A. MC cuts AVC and ATC at their minimum point
B. When MC is less than AFC, AFC is decreasing
C. ATC reaches its minimum point before AVC reaches its minimum point
D. While MC is increasing, AVC may be in its decreasing or increasing portion
ANSWER: C
10. Which one of the following is/are FALSE?
A. When MC are greater than ATC, ATC is in its increasing portion
B. AVC reaches its minimum value before ATC reaches its minimum value
C. MC reach its minimum value after ATC reaches its minimum value
D. MC reach its minimum value before ATC reaches its minimum value
ANSWER: C

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11. Which one of the following requirements for is applied for monopoly?
A. The product cannot be produced by small firms
B. There are several close substitutes for the product
C. There is a unique product with no close substitutes
D. Products are high priced
ANSWER: C
12. Which one of the following is NOT the assumption of perfect market structure?
A. Perfect knowledge among buyers and sellers
B. Few sellers and many buyers
C. Freedom of entry and exit
D. Symmetric information among buyers and sellers
ANSWER: B
13. Which market structure has only two sellers
A. Monopoly
B. Perfect completion
C. Monopolistic completion
D. Duopoly
ANSWER: D
14. Which GDP measurement approach looks at the total income earned by citizens and businesses in a country
in one year?
A. Income Approach
B. Expenditure approach
C. Output approach
D. Value added approach
ANSWER: A
15. If corporations paid out all of their undistributed corporate profits as dividends to their stockholders then
which of the following national income accountants would show an increase?
A. Gross Domestic Product
B. Personal Income
C. Net Domestic Product
D. National Income
ANSWER: B

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16. When there is an expansion of output, income, employment, prices and profits, at which phase of business
cycle the economy operates?
A. Recession Phase
B. Recovery Phase
C. Prosperity Phase
D. Depression Phase
ANSWER: C
17. In the long run economic behavior analysis, which of the following is real variable.
A. Money supply
B. Interest rate
C. Price level
D. Employment
ANSWER: D
18. In the long run aggregate supply curve, what will be affected if aggregate demand curve shifts.
A. Only output
B. Nothing changes
C. Both output and price
D. Only Price
ANSWER: D
19. The macroeconomic policy which is implements a change in government spending or tax.
A. Monetary policy
B. Fiscal Policy
C. Discount loan
D. Federal reserve system
ANSWER: B
20. An unemployment which is likely to be long-term unemployment is
A. Structural unemployment
B. Cyclical unemployment
C. Frictional unemployment
D. Natural unemployment
ANSWER: A

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21. The ratio of the change in the equilibrium level of output to a change in some autonomous variable
A. Aggregate output
B. Aggregate income
C. Multiplier
D. Planned investment
ANSWER: C
22. What is the cause of trade deficit in an open economy?
A. Decrease investment
B. Saving exceeds investment
C. Increase saving
D. Investment exceeds saving
ANSWER: D
23. Which is false about investment?
A. It is the application of money for earning more money
B. It provides funds for emergencies and for making specific purchases
C. It is the current commitment of resources in order to achieve later benefits
D. It is the change in the capital stock
ANSWER: B
24. Which of the following is false about money?
A. The stock of assets
B. It refers to all wealth
C. A customary medium of exchange
D. Facilitates the exchange of goods and services
ANSWER: B
25. Which is FALSE about the IS curve?
A. It assumes fixed interest rate
B. The IS curve shifts with change in fiscal policy
C. It assumes fixed fiscal policy
D. It is the combinations of interest rate and investment
ANSWER: D

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26. Which is a basic model of the determination of the interest rate?

A. The Keynesian cross
B. The theory of liquidity preference
C. Planned Expenditure
D. Investment function
ANSWER: B
27. Expansionary fiscal policy considers one of the following among the alternatives
A. An increase in government purchases
B. An increase in interest rate
C. An increase in taxes
D. Decrease in interest rate
ANSWER: A
28. Which of the following is FALSE about development Economics?
A. It is economics of underdevelopment/developing countries
B. Efficient allocation of scarce productive resources is a primarily concern
C. There is no single development economics in the world
D. It focuses on the relationship between public sector and private sector
ANSWER: B
29. Why agricultural productivity is low in less developed countries?
A. Predominantly noncommercial peasant farming
B. Engagement of lesser number of people
C. Abundant land size used
D. Low birth rate and lower population size
ANSWER: A
30. Which is NOT the characteristic of traditional society in Rowstow stages of economic development?
A. Subsistence agriculture
B. Limited technology
C. Static or 'rigid' society
D. Increased agricultural productivity
ANSWER: D

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31. Which is NOT the reason for Adam Smith’s theory of development has limited application in developing
countries?
A. Encourage government role
B. Because markets are small
C. Because there is little savings
D. Because there is income is low
ANSWER: A
32. Which development theory view obstacles to development as being primarily external in nature?
A. Structural Change Theories
B. Linear-Stages Theory
C. International dependence theory
D. Neoclassical theory
ANSWER: C
33. Which is FALSE about Lewis model in the rural sector?
A. Unlimited supply of labor
B. High opportunity cost of labor
C. Subsistence wage
D. Low saving
ANSWER: B
34. Which is NOT a policy that prompting rural-urban migration?
A. Neglect agriculture
B. Urban bias development strategies
C. Labor intensive industries in rural areas
D. Rural-Urban brain drain
ANSWER: C
34. What is the influence of free trade to the environmental damage?
A. It does not influence the environment
B. Free trade subsidized environmental damage
C. Free trade will bring green product
D. Free trade may lead to more environmental problem
ANSWER: D

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35. Which country incurs the environmental damage; if the product produces environmental damage when used
by the consumers and the product is imported from other country?
A. The exporting country experiences the environmental damage while the importing country does not
B. The importing country experiences the environmental damage while the exporting country does not
C. Both importing and exporting countries suffer from environmental damage
D. Neither the importing and exporting countries suffer from environmental damage
ANSWER: B
36. Any effect on a party not directly involved in the production or consumption of a good is
A. Public good
B. Externality
C. Rival
D. Non-excludable
ANSWER: B
37. Environmental economics attempts to study the inter relationship between
A. Environment and resource allocation
B. Economic agents and environment
C. Economic problems and environment
D. Environment and ecology
ANSWER: B
38. If many industries are expanding with in a country, what is happening?
A. Nothing is changing
B. The people’s welfare is decreasing
C. The mortality level is increasing
D. The economy is expanding and we have economic growth
ANSWER: D
39. Which country pollutes our atmosphere more than the other countries?
A. China
B. Russia
C. Japan
D. Mongolia
ANSWER: A

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40. What kind of market failure is if a company producing medicines also pollutes the air
A. Asymmetric information
B. Monopolies
C. Negative externality
D. Open access property problems
ANSWER: C
41. Which of the following statements would a mercantilist not agree with?
A. Imports are desirable.
B. Policies should promote exports and discourage imports.
C. All
D. None
ANSWER: A
42. A tariff differs from a quota in that a tariff is:
A. Levied on imports, whereas a quota is imposed on exports.
B. Levied on exports, whereas a quota is imposed on imports
C. A tax levied on exports, whereas a quota is a limit on the number of units of a good that can be exported.
D. A tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can
be imported
ANSWER: D
43. Which of the following is true if the tariff on foreign-produced automobiles were increased?
A. The domestic price of automobiles would fall
B. The supply of foreign automobiles to the domestic market would be reduced, causing auto prices to rise
C. The number of unemployed workers in the domestic automobile industry would rise
D. The demand for foreign-produced automobiles would increase, causing the price of automobiles to
increase in other nations
ANSWER: B
44. The acronym GATT stands for:
A. General Association for Trade and Tariffs
B. General Agreement on Tariffs and Trade
C. General Accounting for Tariff and Trade
D. General Association on Technology and Trade
ANSWER: B

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45. Tariffs result in a decrease in consumer surplus because:

A. The price and the quantity consumed of the protected good increases
B. The price and the quantity consumed of the protected good decreases
C. The price of the protected good increases and quantity consumed decreases
D. The price of the protected good decreases and quantity consumed increases
ANSWER: C
46. What does it mean for a nation to have an absolute advantage in the production of a good?
A. Can produce the good more efficiently than another nation.
B. It takes more raw materials than another nation to produce the good.
C. It can produce the good at a lower opportunity cost than another nation.
D. It must automatically have a comparative advantage in the production of this good
ANSWER: A
47. The membership of the WTO includes about __________ nations.
A. 15
B. 700
C. 150
D. 1500
ANSWER: C
48. According to the theory of comparative advantage, countries gain from trade because
A. Trade makes firms behave more competitively, reducing their market power
B. All firms can take advantage of cheap labor
C. Output per worker in each firm increases
D. World output can rise when each country specializes in what it does relatively best
ANSWER: B
49. Which one of the following are discounted measures of project worth?
A. Ranking by inspection
B. Payback Period
C. Net present value
D. All
ANSWER: C

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50. Which one of the following are acceptable criteria to approved proposed project?
A. If Net present value > 0
B. Benefit cost ratio ≥ 1
C. Net benefit investment ratio ≥ 1
D. All
ANSWER: D
51. Which one of the following is environmental aspect of the project?
A. Market share of the project
B. Cost of restoration
C. Cost of capital
D. Manufacturing process and technology
ANSWER: B
52. Which stage of project examines the project plan and what really happened?
A. Implementation
B. Identification
C. Ex-post evaluation
D. Feasibility study
ANSWER: C
53. Which one of the following statements is true?
A. Financial analysis used shadow prices
B. Economic analysis used shadow prices
C. Economic analysis used market price
D. Financial analysis used efficiency prices
ANSWER: B
54. Costs which are those incurred in the past and upon which the proposed new investment will be based.
A. Contingency allowances
B. Martial cost
C. Factory overhead cost
D. Sunk costs
ANSWER: D

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54. An opportunity cost of an activity or project to a society and computed where the actual price is not known.
A. Shadow price
B. Secondary benefit
C. Secondary cost
D. Intangible benefit
ANSWER: A
55. Which one of the following is true about the cause of disturbance term in OLS model?
A. Random nature of human responses
B. Errors of measurement
C. Errors in specification of the mathematical form of the model
D. All
ANSWER: D
56. All of the assumptions of multiple linear regression models are the same as simple linear regression model
except the assumption of
A. No autocorrelation
B. Heteroscedasticity
C. No perfect multicollinearity
D. All
ANSWER: C
57. Which one of the following tests is use for the overall significant test of the OLS model?
A. T- test
B. F- test
C. Z- test
D. All
ANSWER: B
58. If correlation coefficient is 0 which one of the following is true
A. A perfect positive correlation present
B. A perfect negative correlation present
C. Absolutely no linear correlation present
D. All
ANSWER: C

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59. Which one of the following is true according to Gauss-Markov theorem?

A. Linearity of the model in parameters.
B. Unbiased estimator
C. Minimum variance
D. All
ANSWER: D
60. Which one of it true if the coefficient of determination is 0.96
A. 4% of the total variation in the model explained by the independent variable
B. 96% of the total variation in the model explained by the independent variable
C. 4% of the total variation in the model explained by the dependent variable
D. 96% of the total variation in the model explained by the dependent variable
ANSWER: B
61. When a Type I error occurs?
A. Reject a false null hypothesis
B. Reject a true null hypothesis
C. Do not reject a false null hypothesis
D. Do not reject a true null hypothesis
ANSWER: B
62. What does it mean heteroscedasticity in econometrics?
A. The variance of the errors is not constant
B. The variance of the dependent variable is not constant
C. The errors are not linearly independent of one another
D. The errors have non-zero mean
ANSWER: A
63. If there is autocorrelation in the sample data, what problem with the estimated coefficient?
A. Unbiased estimators
B. Consistent estimators
C. Efficient estimators
D. Linear estimators
ANSWER: C

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64. In the regression function y= α +βx + ε

A. x is the regressor
B. Y is the regressor
C. x is the regressand
D. y is the independent variable
ANSWER: A
65. What is called data collected at a given point of time?
A. Panel Data
B. Time series data
C. Pooled data
D. Cross-sectional data
ANSWER: D
66. Which one is not the assumption of OLS?
A. Perfect multicollinearity
B. Zero co-variance between error terms
C. Equal variance of disturbances
D. Mean value of disturbances is approximately zero
ANSWER: A
67. Durbin Watson test is associated with:
A. Heteroscedasticity
B. Multicollinearity
C. Autocorrelation
D. Both Heteroscedasticity and Autocorrelation
ANSWER: C
68. In confidence interval estimation, α = 5%, this means that this interval includes the true β with probability
of;
A. 99%
B. 90%
C. 5%
D. 95%
ANSWER: D

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69. Which formula is used to calculate coefficient of determination?

A. 1+RSS/TSS
B. 1-RSS/ESS
C. 1-RSS/TSS
D. 1*RSS/TSS
ANSWER: C
70. What does it mean an estimator is BLUE in OLS regression?
A. Best Linear Unbiased Estimator
B. Best Linear Unconditional Estimator
C. Basic Linear Unconditional Estimator
D. Basic Linear Unbiased Estimator
ANSWER: A
71. The linear function of the variables which is to be maximize or minimize is called
A. Functional constraints
B. Non-negativity constraints
C. Objective function
D. Decision variables
ANSWER: C
72. Linear programming problem involving more than two variables can be solved by
A. Simplex method
B. Graphical method
C. Matrix minima method
D. None of the above
ANSWER: A
73. For maximization LPP, the simplex method is terminated when all values
A. Zj – Cj ≤ 0
B. Zj – Cj ≥ 0
C. Zj – Cj = 0
D. Zj ≤ 0
ANSWER: A

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74. If the value of the objective function z can be increased or decreased indefinitely, such solution is called
A. Bounded solution
B. Unbounded solution
C. Multiple optimal Solution
D. None of the above
ANSWER: B
75. For a maximization problem, the objective function coefficient for an artificial variable is
A. +M
B. –M
C. Zero
D. None of the above
ANSWER: B
76. A variable which does not appear in the basis variable column of simplex table is
A. Never equal to zero
B. Always equal to zero
C. Called basic variable
D. None of the above
ANSWER: B
77. The following are constraints which have had slack variables added.
2X1 + 4X2 + S1 = 20
6X1 + 4X2 + S2 = 36
If X1 =2 and X2=2, what are the values for S1 and S2?
A. S1 = 20, S2 = 36
B. S1 = 16, S2 = 32
C. S1 = 8, S2 = 16
D. S1 = 0, S2 = 0
ANSWER: C
78. A solved LP problem indicated that the optimal solution was X1=10 and X2=20. One of the constraints was
4X1 + 2X2 ≤ 80. This constraint has
A. Surplus greater than zero
B. Slack greater than zero
C. Surplus equal to zero
D. Slack equal to zero
ANSWER: D
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79. An optimal of an assignment problem can be obtained only if

A. Each row and column have only one zero element
B. Each row and column have at least one zero element
C. The data are arrangement in a square matrix
D. None of the above
ANSWER: A

80. The critical path is the __________ path through the network.
A. Longest
B. Shortest
C. Straightest
D. None of the above
ANSWER: A
81. Which of the following is not the definition of market?
A. It is a place where goods and services are exchanged
B. It is a potential buyers and sellers of a product
C. It is an organization w/c provides families for exchange of commodities
D. None
ANSWER: D
82. Based on the following information, choose the correct answer
Say a seed company carries fixed costs of 100,000 birr.
Assume a VC of production per quintal of seed be 500 birrs.
Suggested selling price per quintal 1000 birr.
How much should the company sell before it breaks even?
A. 150 unit
B. 300 unit
C. 200 unit
D. 100 unit
ANSWER: C
83. Which of the following pricing strategies alternative is false?
A. In competitive pricing, the price is set based on what the competition charges.
B. In penetration pricing, set a low price to enter a competitive market and raise it Later
C. In Price skimming, set a high price and lower it as the market evolves.
D. In cost –plus pricing, base your product or service’s price on what the customer believes it’s worth.

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ANSWER: D
84. Which one of the following alternatives is false about market orientation?
A. It focuses on identifying the customer needs and preferences
B. Adding a certain percentage to cost in order to fix the price.
C. It is the processes of product development and creation are focused on satisfying the needs of consumers
D. The most notable companies that use market orientation include Coca-Cola, Nike and Amazon.
ANSWER: B
85. One of the following involves direct spoken communication between sellers and potential customers.
A. Personal selling
B. Mass selling
C. Publicity
D. Advertising
ANSWER: A
86. Which pricing objective establishes relatively high prices to develop and maintain an image of quality
A. Profitability objectives
B. Competitive objectives
C. Strategic objectives
D. Prestige objectives
ANSWER: D
87. Great Gardens Company makes a mulch product for soil that costs £18 to manufacture. The mulch product
sells at a price of £25 per bag. How many the sales margin (market margin)?
A. 28%
B. 39%
C. 72%
D. 25%
ANSWER: A
88. When the buying price from the farmer is 500 birr per kg, the weighted average wholesale selling price is
900 birr per kg and the weighted average retail price is 1300 birr per kg. What is the value of Gross
Marketing Margin of Producers (GMMp), Gross marketing margin of wholesaler (GMMw) and Gross
marketing margin of retailer (GMMr) respectively?
A. 23.46% 26.54% and 50%
B. 38.46%, 30.77% and 30.77%
C. 15%, 22.5% and 62.5%
D. 35%, 18% and 47%
ANSWER: C
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89. One is false about input-output production relationships

A. It guides the producer in making the decision how much to produce
B. It helps the producer in the determination of optimum input to use and optimum output to produce
C. It deals with the resource combination and resource substitution
D. The optimum amount of input to use and the optimum amount of product to produce is the point where
MR=MC and MVP=MIC respectively
ANSWER: C
90. Which one of the following is true decision rule about input- output production relationships?
A. If MVP is greater than MIC, additional profit can be made by using less input.
B. If MR is less than MC, more profit can be made by using less input.
C. If MVP is less than MIC, more profit can be made by using more input.
D. Profit maximizing or optimum input level is at the point where MR = MIC
ANSWER: B
91. Which of the following is representing output-output relationship?
A. Maize with Wheat production
B. Tractor with Teff production
C. Labor with Land
D. All
ANSWER: A
92. Which of the following is/are one of the measurements of factor-factor relationship?
A. Product transformation ratio (PTR)
B. Input Substitution ratio
C. Marginal value product (MVP)
D. Marginal input cost (MIC)
ANSWER: B
93. One is false among others
A. When two resources are completely interchangeable, they are called perfect substitutes
B. In the case of complements reduction in one factor cannot be replaced by an increase in another factor
C. In the decreasing Rate of input substitution every subsequent increase in the use of one factor replaces
less and less of other factor
D. If Marginal rate of substitution (MRS) is greater than price ratio (PR) costs can be reduced by using more
of replaced resource
ANSWER: D
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94. Identify one which is the benefits of farm planning

A. Guide lines for making operational decisions
B. Shows the market outlets and the marketing strategy to sell
C. It enables managers to combine or organize resources to produce some combination and quantity of
products
D. All
ANSWER: D
95. A type of budget which is needed to calculate the expected change in profit for a proposed change in the
farm business is
A. Enterprise budget
B. Whole farm budget
C. Partial budget
D. Complete farm budget
ANSWER: C
96. _______used to select the most profitable plan from among a number of alternatives and to test the
profitability of any proposed change in a plan.
A. Farm planning
B. Farm budgeting
C. Farm recording
D. All
ANSWER: B
97. Which of the following is/are the important of farm record keeping?
A. It is management tool
B. It helps to obtain credit
C. It is used for reporting income tax
D. All
ANSWER: D`
98. _________ is the process of measuring and recording all farm resources and a farm transaction with
financial consequences in a systematic way.
A. Farm record keeping
B. Farm accounting
C. Farm budgeting
D. Farm planning
ANSWER: B
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99. Which source of risk arises due to yield variability which results due to biological and climatic factors, and
new technology?
A. Technological risks
B. Economic uncertainty
C. Production risk
D. Climatic uncertainty
ANSWER: C
100. Which is a process of estimating costs, returns and net profit of a farm or a particular enterprise?
A. Farm budgeting
B. Preparing balance sheet
C. Farm Planning
D. Financial statement
ANSWER: A

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