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Mba Question Paper

Mba

Course:Master Of Business Administration

Institution: Jomo Kenyatta University Of Agriculture And Technology question papers

Exam Year:2010

JOMO KENYATTA UNIVERISTY OF AGRICULTURE AND TECHNOLOGY

FIRST SEMESTER 2010/11
MASTER OF BUSINESS ADMINISTRATION

HCB 3104: MANAGERIAL ECONOMICS

DATE: NOVEMBER 2010 TIME: 3 HOURS

SECTION A: (50 Marks)
Answer All Questions in this Section.

1. Using the annual data for the period 1998 to 2008, Prof. Muzungu applied a Cobb-Douglass production function to estimate the production for the Kenya’s manufacturing sector as a whole. His results were as follows: and . Where units of output; units of labour; units of capital; coefficient of determination.
a) What are the marginal products of labour and capital? [5 Marks]
b) Calculate the factor intensity and explain the technique of production that is being used by Prof. Muzungu. [5 Marks]
c) Compute production elasticities of labour and capital. Explain significance of these parameters in production decision making. [5 Marks]
d) How would you characterize the Kenya manufacturing sector in terms of the returns to scale and what are the causes of such returns to scale. [5 Marks]
e) Explain the significance of returns to scale in decision making. [5 Marks]

2. Suppose you were hired as a manager to a firm producing bread. This firm is a monopolist which sells in two distinct markets, one of which is completely sealed of from the other. The demand curve for the firm’s output in the first market is ; where price of the product in the first market and amount sold in the first market. The demand curve for the firm’s output in the second market is ; where price of the product in the second market and amount sold in the second market. The firm’s cost curve is ; where the firm’s entire output destined for either market. The firm asks the manager to suggest what its pricing policy should be.
a) What are the profit maximizing prices and quantities in each market? [5 Marks]
b) Comment on price elasticities of demand for the two markets. [5 Marks]
c) Show that greater profit results from price discrimination than would be obtained if a uniform price were used. [5 Marks]
d) State and explain five necessary conditions for price discrimination. [5 Marks]
e) A monopolist has no incentive to operate at the optimal scale in the long run equilibrium. Discuss. [5 Marks]

SECTION B: ASSIGNMENT (50 Marks)
In this Section, Answer Question 3 (Compulsory) and Any Other Question.

3. Mr. Chirchir estimated a multiplicative demand function of the form using a cross-section data collected in Kibera, Nairobi on 29th December 2007. The estimation results are as follows:

Constant Price ( )
Income ( )
Price of Other Good ( )

Estimated Coefficient 0.02248 -0.2243 1.3458 0.1034
Standard Error 0.01885 0.0563 0.5012 0.8145
t-statistic (1.19) (-3.98) (2.69) (0.13)
Number of Observations ;

Critical Students’ t = 1.96 at 5% Level of Significance
(a.) How should the estimated coefficients and value be interpreted? [5 Marks]
(b.) Compute quantity demanded if the values of the independent variables are: Price = KES. 10; Income Per Capita = KES. 9,000; and Price of Other Good = KES. 15? [5 Marks]
(c.) How much would quantity demanded change if the price were decreased to KES. 8 and the values of other variables held constant? [5 Marks]
(d.) What effect would a price increase have on total revenue? Are the two goods substitutes or complements? Explain. [5 Marks]
(e.) Derive the relationship between marginal revenue and price elasticity of demand and show that for a monopolist to sell an extra unit of a commodity he produces, he has to lower the price. [5 Marks]

4. Consider the problem facing Winnie Wangui, a manager who must choose between two investments I and II. The probability distributions for the payoffs for each investment are shown in the following table.

I II
Probability ( )
Payoff ( ) in KES. Millions
Probability ( )
Payoff ( ) in KES. Millions

0.10 -20 0.20 10
0.50 20 0.40 20
0.40 50 0.40 30
Each payoff represents the present value of all future profits. The decision maker’s utility function is where payoff in Kenya Shillings.

a) Would you characterise this decision maker as a risk seeker, risk neutral or risk averse? Explain. [5 Marks]
b) If the objective is to maximize the expected return, which investment is the better choice? (for the moment disregard risk). [5 Marks]
c) Evaluate the risk per expected return for both investments and interpret the results. [5 Marks]
d) If the objective of the manager is utility maximization, which investment should be chosen? Explain your results. [5 Marks]
e) State and explain five techniques that Mary Wangui can use in order to manage and reduce the risk associated with her investment portfolio. [5 Marks]

5. Strategic and Risk Managers in firms operating under different market structures are faced with responsibilities of managing and ameliorating risk associated with various projects under their control; and determining a pricing scheme that the firms should adopt.

a) State and explain five long-run determinants of market structures. [5 Marks]
b) Examine the argument that good oriented managers will always require a good background of Managerial Economics in decision making. [5 Marks]
c) State and explain five strategies that a Strategic and Risk Manager in a firm under telecommunications industry can use to prevent entry and reduce the risk associated with entry of other firms in that industry. [5 Marks]
d) Briefly discuss four main pricing decisions that a Strategic Manager of a firm can use in order maximize the profits of the firm and the increase the value of a firm. [5 Marks]
e) From the four pricing decisions discussed under (d), what pricing scheme will you recommend for a firm in an oligopolistic telecommunications industry in Kenya to use when pricing its products or services? Explain and give reasons. [5 Marks]
(Total marks 100)

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